nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2021‒11‒01
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Pecunia olet. Cash usage and the underground economy By Michele Giammatteo; Stefano Iezzi; Roberta Zizza
  2. Understanding a Less Developed Labor Market through the Lens of Social Security Data By Nada Wasi; Chinnawat Devahastin Na Ayudhya; Pucktada Treeratpituk; Chommanart Nittayo
  3. Tax Incentives to Appear Small: Evidence from Thai Firms and Corporate Groups By Chanont Banternghansa; Athiphat Muthitacharoen; Archawa Paweenawat; Krislert Samphantharak
  4. The Fragile Landscape of the Sharing Economy in Hungary By Simonovits, Bori; Bernát, Anikó; Balázs, Bálint

  1. By: Michele Giammatteo (Bank of Italy); Stefano Iezzi (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: This paper explores the role of cash usage in feeding the underground economy by using a unique dataset that combines, at province level, official estimates of Italian firms’ underreporting with data on cash transactions drawn from the aggregate anti-money laundering reports filed to the Italian Financial Intelligence Unit (UIF) by banks. In order to derive causal evidence, we apply two different econometric strategies: an instrumental variable approach and a difference-in-difference approach, which exploits the change in the maximum threshold for cash transactions introduced in 2016, thereby providing a measure of the effect of such policy on tax evasion. We find that an increase in cash usage translates, other things being equal, into a higher level of underreporting by firms, and that raising the cash threshold in 2016 – a measure motivated by the objective of boosting spending – had the side effect of leading to a larger underground economy.
    Keywords: shadow economy, tax evasion, cash threshold, bank branches, ATM, cashless payments
    JEL: O17 H26 E26 E42
    Date: 2021–10
  2. By: Nada Wasi; Chinnawat Devahastin Na Ayudhya; Pucktada Treeratpituk; Chommanart Nittayo
    Abstract: While understanding labor market dynamics is crucial for designing the country’s social protection programs, prohibitive longitudinal surveys are rarely available in less developed countries. We illustrate that employment history from Social Security records can provide several important insights by using data from a middle-income country, Thailand. First, in contrary to the traditional view, we find that the formal and informal sectors are quite connected. Our analysis of millions of individual histories by a machine learning technique shows that more than half of registered workers left the formal sector either seasonally or permanently long before their retirement age. This finding raises a question of whether the social protection schemes being separately designed for formal and informal workers are effective. Second, the semi-formal workers also had a much flatter wage-age profile compared to those always staying in the formal sector. This observation calls for effective redistributive tools to prevent earnings inequality to translate into disparities in old-age and transmit to the next generation. Lastly, on the employer size, we find that almost half of formally registered firms had fewer than five employees, the benchmark often used to define informal firms. This result suggests that the distributions of firm sizes differ across countries and the employer size alone is unlikely sufficient to define informal workers.
    Keywords: Employment; Work History; Social Security; K-means Clustering; Thailand
    JEL: J01 J08 J21 J60
    Date: 2021–01
  3. By: Chanont Banternghansa; Athiphat Muthitacharoen; Archawa Paweenawat; Krislert Samphantharak
    Abstract: This paper studies the effects of SME tax incentives on firm behaviors. We use firm-level panel data of all registered firms in Thailand to analyze the effects of a large reduction in corporate income tax rates for SMEs in 2011. First, we find that firms responded strongly to the SME tax incentive as indicated by a sharp bunching of firms just below the threshold after the incentive was introduced. The responses were concentrated among firms with positive EBIT, implying a financial motive for firms to remain small. Second, the bunching was prominent for stand-alone firms, where we observe slower revenue growth for those below the threshold. Third, we do not observe bunching for corporate-group firms, but we find evidence of tax-motivated profit shifting among them instead, especially among firms in small groups with weak corporate governance. Our analysis suggests that transfer pricing was likely a primary channel. Finally, despite the unintended consequences, we find that the incentive significantly raised the probability of firm's survival and encouraged new firm registration, as the policy intended.
    Keywords: Bunching; Tax Incentives; Business Group; Corporate Tax; Size-dependent Policy; Tax Evasion
    JEL: F23 H25 H26 K34 M42
    Date: 2021–02
  4. By: Simonovits, Bori; Bernát, Anikó; Balázs, Bálint
    Abstract: In this chapter, we assess the current state-of-the-art of the Hungarian sharing economy sector relying on statistics, previous surveys, and expert interviews around case examples. Although we record a fast emergence of an increasing number and a widening variety of multinational and home-grown initiatives, we also contend that in Hungary, the innovation ecosystem of the collaborative economy is still relatively feeble. The linkages that are created through these initiatives are controversial sociologically. The main end-users are highly educated young urbanites. In contrast, on the service provider front, the non-formal workforce is quite vulnerable as the current regulations hardly provide any protection to platform workers. The motivations of the key players in the sector are varied, as only a few locally based initiatives are transformative. In contrast, most examples are solely linked to finding new business opportunities in a shrinking economy.
    Keywords: Collaborative Economy; Global and Local Case Examples; Hungary; Platform Economy; Ride-Sharing; Sharing Economy; Short-Term Rental; Social Innovation
    JEL: L86
    Date: 2021

This nep-iue issue is ©2021 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.