nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒06‒27
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. The Compliance Dilemma of the Global Minimum Tax By Hindriks, Jean; Nishimura, Yukihiro
  2. Closing pandora's box: How to improve the common reporting standard By Khadjavi, Menusch; Vertelman, Marjolein
  3. Heterogeneous Returns of Informality: Evidence From Brazil By Andrea Otero-Cortés
  4. Street Vending: An Introduction and Overview By Abbas Moosvi
  5. Understanding Financial Inclusion in Mongolia from a Micro Perspective: Is There a Gender Gap? By Enerelt Murakami

  1. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University)
    Abstract: To tackle profit shifting, the OECD/G20 Inclusive Framework proposes a Global Minimum Tax that requires that if a multinational en- terprise (MNE) declares its operations in a jurisdiction taxing less than the global minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. The general presumption is that (unconstrained) high-tax countries will gain and low-tax countries will lose because the constrained taxes will reduce their inward profit shifting. The purpose of this paper is to show, by means of a formal model of international tax competition with heterogeneous countries, that the consequences of the global minimum tax can be just the opposite. The key feature of our analysis is that the minimum tax will change the dynamics of tax competition together with the enforcement incentives. We show that in this broader framework, the low-tax country always gain and that there exists a critical threshold for the minimum tax beyond which enforcement cooperation will break down making the high-tax country worse off with minimum tax. The minimum tax threshold is decreasing in the extent of the tax asymmetry. We call this new effect the compliance dilemma.
    Keywords: Profit shifting ; Tax competition ; Tax enforcement
    JEL: C72 F23 F68 H25 H87
    Date: 2022–03–03
  2. By: Khadjavi, Menusch; Vertelman, Marjolein
    Abstract: The 2021 pandora papers show that many wealthy individuals and even politicians use shell companies to hide their fortunes. In order to fight international personal tax evasion, the Common Reporting Standard (CRS) was implemented and it helped governments to collect USD 85 billion already. USD 182 billion are still missing from the government budget because of personal tax evasion. The individual implementation strategies of CRS compliant countries can endanger the effectiveness of the Automatic Exchange of Information (AEOI). Several loopholes are used to circumvent the CRS. There are amendments possible which increase the effectiveness by improving the implementation strategies and closing the loopholes. The enforcement of the CRS should become stricter by removing financial institutions' licenses to operate in cases of non-compliance. Beneficial ownership registers should increase transparency regarding investments and securities. Within the current momentum of international tax legislation, the CRS compliant countries may leverage the USA into signing the CRS as well. The USA could in turn demand a more effective CRS before signing it.
    Keywords: Common Reporting Standard (CRS),Automatic Exchange of Information (AEOI),global taxevasion,improvements,loopholes
    JEL: H20 H26
    Date: 2022
  3. By: Andrea Otero-Cortés
    Abstract: This paper estimates the marginal treatment effect of informality on wages for Brazil at the individual level using regional data on labor inspectors for identification. The results show that there is significant essential heterogeneity among otherwise identical workers that lead them to self-select into the type of jobs, formal or informal, that better reward their skills. The Average Treatment Effect (ATE) is 22%, but not statistically different from zero. But there are individuals with very low non-observed costs of formality that in fact earn premiums of up to 100% of their wage rate from being formal and workers who would be hurt from switching to formality as they experience very high non-observed costs of being formal. Two policy experiments in which we tighten enforcement of the labor law via hiring more labor inspectors increases the likelihood of workers being formal, but it has, on average, a negative effect on wages for the workers who are induced to switch from informality to formality. **** RESUMEN: Este documento estima para Brasil el efecto marginal de la formalidad laboral en los salarios a nivel individual utilizando una combinación de datos regionales sobre inspecciones laborales y actividad económica. Los resultados muestran que existe una heterogeneidad esencial significativa entre trabajadores que son idénticos en sus características observadas, que los lleva a auto-seleccionarse en el tipo de trabajos, formales o informales, que recompensan mejor sus habilidades. El efecto promedio del tratamiento (ATE) es del 22%, pero no es estadísticamente diferente de cero. Sin embargo, hay individuos con costos de formalidad no observados muy bajos que de hecho ganan primas de hasta el 100% de su salario por ser formales y trabajadores que se verían perjudicados por cambiar a la formalidad ya que experimentan costos no observados muy altos de ser formales. Dos experimentos de políticas en los que imponemos una aplicación más estricta de la ley laboral mediante la contratación de más inspectores laborales aumenta la probabilidad de que los trabajadores sean formales, pero tiene, en promedio, un efecto negativo en los salarios de los trabajadores que son inducidos a pasar de la informalidad a la formalidad.
    Keywords: Labor informality, labor regulation, enforcement, marginal treatment effects, Informalidad laboral, regulación laboral, aplicación, efectos marginales de tratamiento
    JEL: H26 J24 J32 J46 K31
    Date: 2022–06
  4. By: Abbas Moosvi (Pakistan Institute of Development Economics)
    Abstract: The widespread phenomenon of street vending, particularly in the developing world, is a fascinating one. With gradual industrialisation, countries in the Global South have experienced significant levels of urban migration—people moving out of their rural settings in the search for better economic opportunities in closer proximity to commercial hubs (Recchi, 2020).
    Keywords: Street Vending
    Date: 2021
  5. By: Enerelt Murakami
    Abstract: This paper investigates the determinants of financial inclusion in Mongolia – a country where persistent “reverse” gender gap in financial inclusion exists. When applying multivariate logistic models to nationally representative data, results show that women, and those who are more educated and older are more likely to be financially included. Women are four percentage points more likely than men to have access to formal finances; men are more likely to report barriers to finance and use informal finances. The Blinder-Oaxaca decomposition technique is employed to analyze the “reverse” gender disparity in financial inclusion. The results demonstrate that the disparity is largely due to coefficient effects that reflect behavioral or unobserved differences towards financial inclusion between men and women.
    Keywords: Financial inclusion, Gender, Mongolia
    Date: 2022–04

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