nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒07‒25
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Fiscal Multipliers and Informality By Davide Furceri; Pietro Pizzuto; Emilio Colombo; Patrizio Tirelli
  2. Labour market effects of digital matching platforms: Experimental evidence from sub-Saharan Africa By Sam Jones; Kunal Sen
  3. City of dreams no more: the impact of Covid-19 on urban workers in India By Shania Bhalotia; Swati Dhingra; Fjolla Kondirolli
  4. Bearing the Burden - Implications of Tax Reporting Institutions and Image Concerns on Evasion and Incidence By Kaisa ⓡ, Nurminen, Tuomas ⓡ, Miettinen, Topi ⓡ, Metsälampi, Satu ⓡ Kotakorpi; Kaisa Kotakorpi
  5. Interest Rate Caps in an Economy with Formal and Informal Credit Markets By Jorge Pozo

  1. By: Davide Furceri; Pietro Pizzuto; Emilio Colombo; Patrizio Tirelli
    Abstract: This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier. This result holds irrespective of the levels of economic development and institutional quality and is robust to additional country characteristics such as trade, financial openness and exchange rate regime. In a two-sector new- Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks. Thus, informality raises the size of the unofficial multiplier. A higher degree of non-separability between public and private goods also contributes to rationalize the lower multipliers in high-informality countries.
    Keywords: Fiscal multiplier; local projection methods; informality; DSGE model; TANK model.; high-informality country; role of informality; unofficial multiplier; government spending shock; investment goods producer; shadow economy variable; depreciation rate; Fiscal multipliers; Informal economy; Consumption; Global
    Date: 2022–05–06
  2. By: Sam Jones; Kunal Sen
    Abstract: Can digital labour market platforms reduce search frictions in either formal or informal labour markets? We study this question using a randomized experiment embedded in a tracer study of the work transitions of graduates from technical and vocational colleges in Mozambique. We implement an encouragement design, inviting graduates by SMS to join one of two local digital platforms: Biscate , a site to find freelancers for informal manual tasks; and Emprego , a conventional formal jobs website.
    Keywords: Job search, Search frictions, Unemployment, Mozambique, Labour market outcomes
    Date: 2022
  3. By: Shania Bhalotia; Swati Dhingra; Fjolla Kondirolli
    Abstract: Many developing economies have large informal sectors and growing urban youth populations, who lack basic social protections at work. The CEP surveyed 8,500 workers aged 18 to 40 in urban India to understand their experiences at work during Covid-19. The survey was conducted between May and July 2020. As in many countries, unemployment increased dramatically. 15.5 percent of workers lost their jobs and 21.7 percent worked zero hours during the survey months. Unlike many developed and some developing economies, 52 percent of urban workers went without work or pay and received no financial assistance to tide over the crisis.
    Keywords: India, urban workers, cities, growth, Covid-19
    Date: 2020–09–01
  4. By: Kaisa ⓡ, Nurminen, Tuomas ⓡ, Miettinen, Topi ⓡ, Metsälampi, Satu ⓡ Kotakorpi; Kaisa Kotakorpi
    Abstract: We investigate effects of tax reporting institutions on evasion and incidence using an experimental double auction market setting. We find that 28% of the sellers are truthful when only sellers report, but that 88% and 64% of them are truthful under costless and costly third-party reporting by buyers, respectively. Reporting behavior therefore responds to the intensity of deterrence. However, we find that prices do not fully reflect the lower taxes of the evaders. Thus, when only sellers report, tax incidence deviates from the prediction of the standard model, and there is deadweight loss even if tax revenue is low. Pricing, incidence, and reporting patterns in all treatments can be explained by a model of lying costs with image concerns that give rise to a motivation to appear honest.
    Keywords: tax evasion, tax incidence, third-party reporting, double auction, social image, experiment
    JEL: H21 H22 H26 D40 D44 D91
    Date: 2022
  5. By: Jorge Pozo (Central Reserve Bank of Peru)
    Abstract: In this work, we aim to study the implications of the interest rate cap in an emerging economy. To do so we develop a two-period banking model with entrepreneurs that undertake risky projects and with formal and informal lenders. Entrepreneurs are heterogeneous in their level of net worth. We find that a cap on the lending interest rate excludes entrepreneurs with a low level of net worth, which in turn increases the participation of the informal credit market, but also might reduce bank markups increasing entrepreneurs' welfare. As a result, our model implies that the lower the market power of banks, the smaller the likelihood that the cap might have some positive impact on aggregate credit and investment.
    Keywords: Interest rate cap; Informal credit market; monopoly banks
    JEL: E5 G21 G23
    Date: 2022–07–08

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