nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2022‒09‒12
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Finance, Informal Competition, and Expectations: A Firm-Level Analysis By Brancati, Emanuele; Di Maio, Michele; Rahman, Aminur
  2. New Perspectives on Inequality in Latin America By Fernández, Manuel; Serrano, Gabriela
  3. Incorporating informal workers into social insurance in Tanzania By Roosa Lambin; Milla Nyyssölä
  4. Decomposing the Grey Economy in Bulgaria - A General-Equilibrium Analysis By Aleksandar Vasilev
  5. Key workers in Ghana during the COVID-19 pandemic By Darkwah, Akosua K.
  6. Pakistan: Economy Under Elites— Tax Amnesty Scheme, 2019 By Ahmed, Muhammad Ashfaq; Malik, Ikram Ali; Nawaz, Nasreen
  7. Independent Contracting, Self-Employment, and Gig Work: Evidence from California Tax Data By Annette Bernhardt; Christopher Campos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein
  8. Understanding the Spatial Relationship Between the Informal Labor Market and Violent Crime in Cali, Colombia By Magaly Faride Herrera Giraldo; Carlos Giovanni González Espitia

  1. By: Brancati, Emanuele (Sapienza University of Rome); Di Maio, Michele (Sapienza University of Rome); Rahman, Aminur (World Bank)
    Abstract: This paper documents the link between finance and informal competition. Using longitudinal firm-level data, we show that formal firms that are more exposed to the competition of informal firms are less likely to apply for a bank loan. This result is not due to sample selection, omitted variable bias, or reverse causality, and it is robust to different econometric specifications, including the use of an IV strategy. As for the mechanism explaining our result, we show that firms more exposed to informal competition have worse expectations on future sales growth, which in turn are associated with a lower probability of loan application. Finally, we provide suggestive evidence excluding supply-side mechanisms that may explain heterogeneities in firms' access to finance.
    Keywords: finance, informality, competition, expectations, MENA countries
    JEL: O16 E26 D84 D22
    Date: 2022–07
  2. By: Fernández, Manuel (Universidad de los Andes); Serrano, Gabriela (Universidad de los Andes)
    Abstract: Latin American countries have some of the highest levels of income inequality in the world. However, earnings inequality significantly changed over the last three decades, increasing during the 1980s and 1990s, declining sharply in the 2000s, and stagnating or even increasing in some countries during the last decade. Macroeconomic instability in the region in the 1980s and early 1990s, and the introduction of structural reforms like trade, capital, and financial liberalization, affected the patterns of relative demand and relative earnings across skill-demographic groups in the 1990s, increasing inequality. Significant gains in educational attainment, the demographic transition, and rising female labor force participation changed the skill-demographic composition of labor supply, pushing education and experience premium downward, but this was not enough to counteract demand-side trends. At the turn of the century, improved external conditions, driven by China's massive increase in demand for commodities boosted economies across Latin America, which began to grow rapidly. Growth was accompanied by a positive shift in the relative demand for less-educated workers, stronger labor institutions, rising minimum wages, and declining labor informality, a confluence of factors that reduced earnings inequality. In the aftermath of the global financial crisis, particularly after the end of the commodities price boom in 2014, economic growth decelerated, and the pace of inequality decline stagnated. There is extensive literature trying to explain the causes of earnings inequality dynamics during the last three decades in Latin America. We discuss this literature regarding themes, methodological approaches, and key findings, emphasizing the latest perspectives. The focus is on earnings inequality and how developments in labor markets have shaped it.
    Keywords: inequality, Latin America, education premium, experience premium, trade reforms, minimum wage, informality
    JEL: D31 D33 F16 J21 J23 J31 O54
    Date: 2022–07
  3. By: Roosa Lambin; Milla Nyyssölä
    Abstract: Expansion of social protection reach among workers in the large informal economy represents a persisting and thorny challenge in the development context. In Mainland Tanzania, several domestically led policy reforms have been introduced to increasingly expand social protection for informal workers. This paper examines the case of Tanzania by exploring the policy developments that have sought to facilitate access to social protection within the informal economy over the past 10-15 years, notably through the expansion of social insurance provision.
    Keywords: Informal sector, Tanzania, Social policy, Sub-Saharan Africa, Informal work
    Date: 2022
  4. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: This paper attempts to assess the size of the grey economy, and provide a decomposition by evasion type. The modelling approach utilizes a standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism and a government sector. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2018). A computational experiment performed within this setup estimates that on average, the size of total evasion is a bit more than one-fourth of output, an estimate which is in line with the figures provided in both Philip (2014) and the European Commission (2014). Two-thirds of the model-predicted evasion is a combined result of income- and social security evasion, while the rest is due to VAT evasion.
    Keywords: tax evasion, general equilibrium, Bulgaria
    JEL: D58 E26 H26 K42
    Date: 2022–08
  5. By: Darkwah, Akosua K.
    Abstract: This study analyses the experience of key workers in Ghana during the COVID-19 pandemic. It analyses their working conditions prior to the pandemic, and then assesses how the pandemic heightened their job demands. In addition, it assesses the extent to which the State and private employers provided the requisite job resources to enable them to cope with the increased demands caused by the crisis. The study finds that some frontline workers have had an increase in work pressure, while other categories of workers, particularly in the informal economy, experienced a decrease in work pressure as demand for their services fell off given the general declines in income. The study finds that although the pandemic reshaped the work environment, workers’ concerns regarding the future were not tied directly to concerns about COVID-19, but rather to larger concerns about working conditions and income security that existed prior to the crisis.
    Keywords: essential worker, COVID-19, labour demand, informal economy, work environment, working conditions
    Date: 2022
  6. By: Ahmed, Muhammad Ashfaq; Malik, Ikram Ali; Nawaz, Nasreen
    Abstract: The Tax Amnesty Scheme, 2019 (TAS 2019), needs to be read as a sequel to the Tax Amnesty Schemes, 2018 (TAS 2018), and so does this article. This article draws significantly on “Pakistan: Economy Under Elites – Tax Amnesty Schemes, 2018” – in title, analytical framework, and even the thrust of argument. Unlike TAS, 2018, which was triggered by the impending bulk inflows of offshore bank account information under the Organization for Economic Cooperation & Development (OECD) – Common Reporting Standard (CRS) framework, the TAS 2019 was prompted by the operationalization of the Benami Transactions (Prohibition) Act, 2017, via framing of the Benami Transactions (Prohibition) Rules, 2019. The granting of the TAS 2019 during PTI government’s prime years despite its public opposition to 2018 was evidence of an unbearable amount of pressure that Elites Ltd can exact on ruling coalitions in Pakistan, and successfully. The below par outcomes go to vindicate the existing knowledge on the subject that compliance to tax laws; nay, any laws, is a function of state recoil and deterrence. The article forebodes that the perverse policy choice of tax amnestization is set to continue in the future.
    Keywords: Tax, Amnesty, Elite
    JEL: H30
    Date: 2022–05–15
  7. By: Annette Bernhardt; Christopher Campos; Allen Prohofsky; Aparna Ramesh; Jesse Rothstein
    Abstract: We use de-identified data from California personal income tax returns to measure the frequency and nature of independent contracting and self-employment work in California. We identify this work by the presence of a Schedule C on the tax return and/or the receipt of a Form 1099 information return. We estimate that 14.4% of California workers aged 18-64 in tax year 2016 had some independent contracting or self-employment income; about half of these workers also had earnings from traditional W-2 jobs during the year. We find that only a small share (1.4%) of workers had earnings from online labor platforms (often called gig work). Workers with low earnings were significantly more likely to earn independent contracting or self-employment income and to rely primarily or exclusively on that income. We explore the characteristics of workers engaging in independent contracting and self-employment and their distribution across family type, geography, and industry.
    JEL: J24 J4 J46
    Date: 2022–08
  8. By: Magaly Faride Herrera Giraldo; Carlos Giovanni González Espitia
    Abstract: The study of the spatial distribution of homicides in historically violent cities is important because it provides new interpretations and potential policies for regions that are characterized by a persistent level of crime. While labor market characteristics have been correlated with its presence, few works have examined spatial patterns with the informal labor market. The empirical strategy begins with the calculation of the Moran index and the LISA test, which confirm a spatial association of homicides in neighborhoods. Subsequently, some linear regression models and a Spatial Durbin Model are estimated to confirm the correlation between homicides and the informal labor market. Finally, the intuition of this spatial correlation is shown in some maps. The main results show that the effect of the labor market on homicides does not come from the characteristics of the formal labor market but from the informal labor market, where working conditions are more precarious (no employment contract, health insurance, unemployment insurance, retirement pension, etc.). Thus, the bulk of this effect occurs in some hillside neighborhoods, areas with characteristics associated with informality, illegality, poverty and the lack of public investment in basic services such as electricity, water supply, sewerage or unpaved streets. These results have practical implications for understanding the correlation between economic incentives and crime in developing countries and in less favored cities in developed regions.
    Keywords: homicides, labor informality, hillside, emerging hot spot analysis.
    JEL: K14 K42 J46 C31
    Date: 2022–08–22

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