nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒08‒22
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Dynamic Tax Evasion and Capital Misallocation in General Equilibrium By Francesco Menoncin; Andrea Modena; Luca Regis
  2. Working in the Shadow: Survey Techniques for Measuring and Explaining Undeclared Work By Lilith Burgstaller; Lars P. Feld; Katharina Pfeil
  3. From informal to formal jobs: The contribution of cooperatives in Colombia By OECD
  4. Import Shocks and Gendered Labor Market Responses: Evidence from Mexico By Pia Heckl
  5. Impact of the COVID-19 Crisis on India’s Rural Youth : Evidence from a Panel Survey and an Experiment By Chakravorty, Bhaskar; Bhatiya, Apurav Yash; Imbert, Clement; Lohnert, Maximilian; Panda, Poonam; Rathelot, Roland
  6. Illicit financial flows and country-by-country reporting in extractive industries By Saila Stausholm; Petr Janský; Marek Šedivý
  7. Circular economy and central bank digital currency By Ozili, Peterson K
  8. Éthique des machines et identités africaines: Perspectives de l'intelligence artificielle en Afrique By Kohnert, Dirk

  1. By: Francesco Menoncin; Andrea Modena; Luca Regis
    Abstract: We study tax evasion in a tractable macroeconomic model with productive public expenditure financed by a fixed-rate income tax. Taxpayers are heterogeneous in their productivity and subject to borrowing constraints. They can lower their fiscal burden by evading taxes at the risk of being audited (and fined) by the government. We solve the model for its competitive equilibrium and characterize entrepreneurs’ optimal policies contingent on their individual productivity and the endogenous price levels. The model predicts that enforcing tax compliance stimulates the productivity of public expenditure, thus making less productive enterprises viable. At the same time, however, fewer evasion opportunities alleviate borrowing constraints by offsetting the advantage of low-productivity (and highly-evasive) entrepreneurs, thereby re-allocating capital to more productive users. On the demand side, decreasing tax evasion reduces consumption levels by curbing private capital accumulation. However, it fosters consumption rates by mitigating entrepreneurs’ precautionary motif against auditing risk.
    Keywords: Dynamic Tax Evasion; Financial Frictions; General Equilibrium; Misallocation
    Date: 2022
  2. By: Lilith Burgstaller; Lars P. Feld; Katharina Pfeil
    Abstract: Little is known about the size and determinants of undeclared work. While approaches to measure the shadow economy have been extensively discussed, conventional surveys dominate research on undeclared work. We review and extend this literature by first referring to the most recent survey data on undeclared work in Germany and, second, by discussing four experimental survey techniques as well as their few applications to questions of undeclared work. We argue that the randomized response technique and list experiments would validate and improve prevalence estimates of undeclared work, whereas careful design of information provision experiments and discrete choice experiments would fill the gap on determinants that causally affect decisions to supply and demand undeclared work.
    Keywords: undeclared work, experimental survey, survey data
    JEL: H26 E26 O17 D91
    Date: 2022
  3. By: OECD
    Abstract: Labour informality remains a critical challenge for Colombia with over 60% of workers in informal jobs with no access to social security benefits, except health. To address the inherent challenges posed by a large informal sector, this paper explores the role that cooperatives can play in driving formalisation in Colombia. It presents the negative impacts of informality on the economy and how the social and solidarity economy, and cooperatives in particular, offer an important model for informal workers to transit towards formalisation (Section 1). It provides facts and figures about the cooperative sector as well as factors contributing to its development and barriers that hinder its expansion (Section 2). It considers the benefits and challenges of the compliance based approach to supervise cooperatives and provides policy orientations to strengthen the sector (Section 3).
    JEL: J54 L31 L33 P13
    Date: 2022–07–29
  4. By: Pia Heckl (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper studies gender differences in the labor market reallocation of workers in Mexico as a response to trade liberalization with China. To measure exposure to import competition, I exploit variation in the initial industry structure of Mexican local labor markets. I show that aggregate outcomes mask heterogeneous responses based on gender. Although the employment rate drops for both men and women, the former enter into unemployment while the latter leave the labor force. The results suggest that the drop in the female labor force participation rate is driven by their exit out of formal and especially informal work.
    Keywords: Trade, Gender Inequality, Labor Market, Informal Work, Mexico
    JEL: F16 J16 J21 J46
    Date: 2022–07
  5. By: Chakravorty, Bhaskar (University of Warwick and GLO); Bhatiya, Apurav Yash (University of Birmingham and CAGE); Imbert, Clement (BREAD, CEPR, EUDN, JPAL and University of Warwick); Lohnert, Maximilian (JPAL SA); Panda, Poonam; Rathelot, Roland (CEPR and Institut Polytechnique de Paris)
    Abstract: This paper presents evidence on the short and long-term impact of the COVID-19 crisis on India’s rural youth. We interviewed about 2,000 vocational trainees from Bihar and Jharkhand three times after the first national lockdown in 2020, between June 2020 and December 2021. We find that a third of respondents who were in salaried jobs pre-lockdown lost their jobs, and half of those who worked out of state returned home shortly after the lockdown. We report a stark difference between men and women: while many male workers took up informal employment, most female workers dropped out of the labor force. In the second part of the paper, we use a randomised experiment to document the effects of a government-supported digital platform designed to provide jobs to low-skilled workers. The platform turned out to be difficult to use and publicised only a few job ads. We find no effect on job search intensity or employment. Our findings suggest that bridging the gap between rural young workers and urban formal labor markets requires more active and targeted policy interventions, especially for female workers Key words: Youth unemployment ; gender ; vocational training ; public policy JEL Codes: J2 ; J3 ; J6 ; J7 ; M5
    Date: 2022
  6. By: Saila Stausholm; Petr Janský; Marek Šedivý
    Abstract: Economic data are important in governing the international political economy. Some of the most widely used macro statistics risk being undermined by systematic misalignment in reporting of economic activity due to illicit financial flows, as well as tax-minimizing financial transactions by multinational corporations. Measuring these misalignments may prove a way to correct old statistical standards, if adequate data can be obtained.
    Keywords: Tax avoidance, Illicit financial flows, Extractive industries
    Date: 2022
  7. By: Ozili, Peterson K
    Abstract: The emergence of central bank digital currency (CBDC) provides an opportunity for central banks to make an important contribution to the transition to a circular economy. This paper examines the role of a central bank digital currency in the circular economy. Central banks can contribute to the transition to a circular economy in two ways: first, by making central bank digital currency accessible to circular businesses and other players in the circular economy sector; and second, by looking into how the design features of CBDC can support circular economy goals. On the role of CBDC in the circular economy, I argue that a central bank digital currency offers a better payment option for circular economy financial transactions; central bank digital currency can lead to greater financial inclusion for ‘unbanked’ informal workers in the circular economy; CBDC can create a gateway that allows a central bank to offer financial assistance to distressed circular businesses; using a central bank digital currency can reduce illicit activities in the circular economy; a central bank digital currency can be used to provide stimulus funding to support circular businesses during crises; and, a central bank digital currency can offer low transaction cost for circular economy financial transactions. The paper also shows the link between CBDC and the circular economy. It also offers a critical perspective on the link between CBDC and the circular economy.
    Keywords: circular economy, central bank digital currency, circular finance, linear economy, resources, sustainability, central bank, CBDC design, blockchain, sustainable development, payment system, innovation.
    JEL: E42 Q2 Q54 Q56
    Date: 2022
  8. By: Kohnert, Dirk
    Abstract: Artificial Intelligence (AI) has been embraced enthusiastically by Africans as a new resource for African development. AI could improve well-being by enabling innovation in business, education, health, ecology, urban planning, industry, etc. However, the high expectations could be little more than pious wishes. There are still too many open questions regarding the transfer required, and the selection of appropriate technology and its mastery. Given that the 'technology transfer' concept of modernization theories of the 1960s utterly failed because it had not been adapted to local needs, some scholars have called for an endogenous concept of African AI. However, this caused a lot of controversies. Africa became a battlefield of 'digital empires' of global powers due to its virtually non-existent digital infrastructure. Still, African solutions to African problems would be needed. Additionally, the dominant narratives and default settings of AI-related technologies have been denounced as male, gendered, white, heteronormative, powerful, and western. The previous focus on the formal sector is also questionable. Innovators from the informal sector and civil society, embedded in the local sociocultural environment but closely linked to transnational social spaces, often outperform government development efforts. UNESCO also warned that the effective use of AI in Africa requires the appropriate skills, legal framework and infrastructure. As in the past, calls by African politicians for a pooling of resources, a pan-African strategy, were probably in vain. AI may develop fastest in the already established African technology hubs of South Africa, Nigeria and Kenya. But promising AI-focused activities have also been identified in Ethiopia and Uganda. Gender equality, cultural and linguistic diversity, and changes in labour markets would also be required for AI to enhance rather than undermine socioeconomic inclusion. In addition, ethical questions related to a specific African identity have been raised. The extent to which African ideas of humanity and humanitarianism should be taken into account when developing an African AI remains an open question. In short, calling for the rapid deployment of AI in Africa could be a double-edged sword.
    Keywords: Intelligence artificielle; Innovation; Apprentissage automatique; Big Data; Industrie 4.0; valeur morale; Éthique de l'IA; Philosophie africaine; Afrique,; Afrique subsaharienne; développement économique et sociale; développement humain; secteur informel; pauvreté; commerce international; État fragile; Afrique du Sud; Nigeria; Kenya; Postcolonialisme; Études africaines;
    JEL: E24 E26 F15 F16 F22 F35 F63 I24 I25 I31 J46 L26 M13 N17 N37 N47 N77 O14 O17 O32 O35 P46 Q14 Z13
    Date: 2022–07–17

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