nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒01‒16
seventeen papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Working and Saving Informally: The Link between Labor Market Informality and Financial Exclusion By Luca Flabbi; Mauricio Tejada
  2. Spatial Wage Curves for Formal and Informal Workers in Turkey By Badi H. Baltagi; Yusuf Soner Baskaya
  3. Social Security Coverage and Informal Workers in Tunisia By Najat El Mekkaoui; Yeganeh Forouheshfar; Asma Benhassen; Nidhal Ben Cheikh; Jacob Emont
  4. Chasing Informality: Evidence from Increasing Enforcement in Large Firms in Peru By Bosch, Mariano; González, Stephanie; Silva Porto, María Teresa
  5. Fostering the Social and Solidarity Economy and Formalizing Informality in MENA Countries By Philippe Adair; Vladimir Hlasny; Mariem Omrani; Kareem Sharabi Rosshandler
  6. May I Calculate Your Taxes?: The Effect of Bookkeeping on Tax Compliance under a Simplified Regime By Bando, Rosangela; Canozzi, Otavio; Martínez Carrasco, José; Dezolt, Ana Lúcia
  7. The network structure of global tax evasion Evidence from the Panama Papers By Garcia Alvarado Fernando; Mandel Antoine
  8. Herding, rent-seeking taxpayers, and endemic corruption By Gil S. Epstein; Ira N. Gang
  9. Firm Closures and Performance in A Time of Pandemic By Amirah El-Haddad; Chahir Zaki
  10. Unpacking the Effects of Covid-19 on Labor Market Outcomes: Evidence from Turkey By Aysun Hiziroglu Aygun; Selin Koksal; Gokce Uysal
  11. Crisis narratives and the African paradox: African informal economies, COVID-19 and the decolonization of social policy By Meagher, Kate
  12. The relationship between firms that start operating as unregistered and firms’ innovation: the moderating effect of access to finance By Sam Njinyah; Simplice A. Asongu
  13. Diagnosing South Africa’s High Unemployment and Low Informality By Kishan Shah
  14. Mapping and measuring the phenomenon of precariousness in Cyprus: challenges and implications By Kosmas, Petros; Theocharous, Antonis; Ioakimoglou, Elias; Vatikiotis, Leonidas; Giannoulis, Petros; Panagopoulou, Maria; Lamprianou, Lamprianos; Andreev, Hristo; Vatikioti, Aggeliki
  15. The Effect of International Migration on Tax Morale in the Home Country: Evidence from Poland By Jan Brzozowski; Nicola Daniele Coniglio
  16. ¿Cómo afecta la formalización del trabajo informal independiente de barrios populares a la pobreza multidimensional urbana? By Acosta, Matias
  17. El impacto de la pandemia en mercado de trabajo precarizados y segmentados: un análisis de los efectos sobre el escenario laboral By Actis Di Pasquale, Eugenio; Gallo, Marcos Esteban

  1. By: Luca Flabbi; Mauricio Tejada
    Abstract: The high level of informality and the low level of savings observed in developing countries are fundamentally linked because informal workers have limited access to formal financial institutions. We study this link by developing and estimating a labor market model where workers can be employed both formally and informally and agents can save through both formal and informal financial institutions. We estimate the model on nationally representative data for Colombia and use the estimated model to simulate counterfactual experiments. Results show that reaching full financial inclusion of informal workers would increase savings by 3% a month and formal assets by 21%. The same policy would strongly decrease inequality in assets and mildly decrease inequality in consumption.
    Keywords: Informality, financial inclusion, savings, labor market search, structural estimation
    Date: 2022
  2. By: Badi H. Baltagi (Department of Economics and Center for Policy Research, Syracuse University); Yusuf Soner Baskaya (University of Glasgow, Adam Smith Business School)
    Abstract: This paper estimates spatial wage curves for formal and informal workers in Turkey using individual level data from the Turkish Household Labor Force Survey (THLFS) provided by TURKSTAT for the period 2008- 2014. Unlike previous studies on wage curves for formal and informal workers, we extend the analysis to allow for spatial effects. We also consider household characteristics that would affect the selection into formal employment, informal employment, and non-employment. We find that the spatial wage curve relation holds both for formal and informal workers in Turkey for a variety of specifications. In general, the wages of informal workers are more sensitive to the unemployment rates of the same region and other regions than formal workers. We find that accounting for the selection into formal and informal employment affects the magnitudes but not the significance of the spatial wage curves for the formal and informal workers with the latter always being larger in absolute value than that for formal workers.
    Date: 2022–04–20
  3. By: Najat El Mekkaoui (University Paris Dauphine, LEDa DIAL, France); Yeganeh Forouheshfar; Asma Benhassen; Nidhal Ben Cheikh; Jacob Emont
    Abstract: Informality is prevalent in Tunisia, limiting the access of a large share of the population to social safety nets. The COVID-19 pandemic has demonstrated more than ever the importance of an inclusive and stable social protection system. Meanwhile, informal workers have been disproportionately affected by the health crisis, hence, extending social security coverage to workers in the informal sector is vital. This paper provides a brief overview of the existing social protection schemes and programs in Tunisia and aims to analyze challenges and opportunities for the extension of social protection to informal workers in the labor market, through studying the main characteristics of Tunisia’s informal workforce and also the characteristics of those informal workers who have transitioned to formality. Finally, we provide policy recommendations tailored to Tunisia’s current situation.
    Date: 2022–09–20
  4. By: Bosch, Mariano; González, Stephanie; Silva Porto, María Teresa
    Abstract: Evasion of labor market regulations in middle income countries is systemic. This is generally known as informality. In Latin America, where less than 50% of workers are registered with social security, this is a permanent phenomenon and encompasses a variety of economic realities ranging from subsistence self-employment to evasion of certain regulations including social security contributions. In this study we analyze the role of enforcement in curbing informality in large formal firms in Peru, where informality levels are around 70%. Through the Peruvian National Labor Control Superintendence (SUNAFIL) we randomly sent 697 letters to formal Peruvian firms of more than 50 workers, indicating their obligation to enroll workers in social insurance systems (health and pensions). Two types of letters were sent, one with a deterrence message and one emphasizing the benefits of formalization. One year after the letters were sent, we found a positive and statistically significant effect on the number of workers enrolled in social security (9.8% on average). Only strict deterrence messages had a significant impact, and only in very large firms. This evidence suggests that there is room for improvement in compliance with labor regulations through more proactive monitoring and behavioral tools such as reminders, but effects could be concentrated in the largest firms.
    Keywords: Informality;Social security;randomized controlled trial;Audit;Letters;Labor formalization
    JEL: C93 O17 D91 H55 J46
    Date: 2021–03
  5. By: Philippe Adair (University Paris-Est Créteil); Vladimir Hlasny (United Nations Economic and Social Commission for Western Asia); Mariem Omrani (UNDP); Kareem Sharabi Rosshandler (The Economic Growth Pillar, West Asia-North Africa Institute)
    Abstract: First, youth inactivity, unemployment and informal employment are pervasive in the MENA labour markets. Using microdata from Labor Market Panel Surveys, and ERF COVID-19 MENA Monitors for six MENA countries, workers’ employment statuses are assessed separately by age group and gender. Second, the social and solidarity economy (SSE) includes both for profit and non-profit entities, cooperatives, associations and mutual. Their legal frameworks and economic impact, especially in terms of employment and GDP contribution are surveyed. Third, personal savings and grants remain the major funding sources of SSEs, which face structural deficiencies in the banking system and lack tailored financial products that the microfinance industry should overcome. Four, formalisation policies encapsulate distinct strategies, targets and impact assessment, wherein which the SSE including microfinance institutions plays a role in formalising both informal businesses and employees, as well as triggering job creation.
    Date: 2022–11–20
  6. By: Bando, Rosangela; Canozzi, Otavio; Martínez Carrasco, José; Dezolt, Ana Lúcia
    Abstract: Many countries worldwide face significant miss reporting in tax declarations. Miss reporting leads to undesired low revenue and economic distortions. This paper discusses the extent to which the residual bookkeeping burden faced by small firms in simplified regimes influence tax declarations. A randomized control trial among 1,500 irregular firms in Piaui, Brazil showed that adding the tax amount due and records on transactions to a warning notification improved compliance in 21 percentage points and increased the reported revenue in 39 percent. Firms without an accountant were less likely to regularize their status without the added information. These findings suggest the use of third party information to support voluntary compliance may present an opportunity for digital services to improve tax revenue services.
    Keywords: Tax compliance;Taxpayer support;Accounting;Tax Support
    JEL: H30 H26 O38 H32
    Date: 2021–07
  7. By: Garcia Alvarado Fernando; Mandel Antoine (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper builds on recent insights from network theory and on the rich dataset made available by the Panama Papers in order to investigate the micro-economic dynamics of tax-evasion. We model offshore financial entities documented in the Panama Papers as links between jurisdictions in the global network of tax evasion. A quantitative analysis shows that the resulting network, far from being a random collection of bilateral links, has key features of complex networks such as a core-periphery structure and a fat-tail degree distribution. We argue that these structural features imply that policy must adopt a systemic perspective to mitigate tax evasion. We offer three sets of insights from this perspective. First, we identify through centrality measures tax havens that ought to be priority policy targets. Second, we show that efficient tax treaties must contain exchange information clauses and link tax-havens to non-haven jurisdictions. Third, we show that the optimal deterrence strategies for a social-planner facing a strategic tax-evader in a Stackelberg competition can be characterized using the notion of Bonacich centrality.
    Keywords: H26 H87 D85 C54 Tax Evasion Socio-economic Networks Game Theory,H26,H87,D85,C54 Tax Evasion,Socio-economic Networks,Game Theory
    Date: 2022–05
  8. By: Gil S. Epstein; Ira N. Gang
    Abstract: In an environment with extensive corruption where much of the population evades paying their full taxes due, we tackle the question of optimal taxation when constituencies with opposing objectives (the poor and the rich) push tax policy in different directions. We think in terms of a government policy-maker, here called the tax administrator (TA), and rent-seeking lobbying efforts by poor and rich constituencies. We recognize taxpayers' inter-dependency as reflected in increased evasion likelihood when others are thought to be evading.
    Keywords: Tax evasion, Corruption, Rent-seeking, Tax administration, Poor
    Date: 2022
  9. By: Amirah El-Haddad (German Development Institute); Chahir Zaki (Cairo University, EMNES and ERF)
    Abstract: We use data from the 2020/21 Egyptian Industrial Firm Behavior Survey (EIFBS) to assess the effects of the COVID-19 crisis on firm dynamics, behavior and performance. The crisis emanating from the COVID-19 pandemic induced both demand and supply side shocks, which are more far reaching than any crisis in living memory. Our results show that the crisis has hit the entire Egyptian manufacturing sector. But, in line with Schumpeter’s (1934) creative destructive theory, the market shows signs of ‘self-cleansing’, whereby the less efficient are more likely to exit and downsize their activities. Our descriptive results show resilience of larger, public, formal, and export sector firms. Thus, revealing pre-existing fragilities of the private, informal and, more generally the lower productivity firms in the manufacturing sector. The counter cyclicality of the relation implies that contraction of the formal sector expands the informal as the only alternative way to earn a living. As a ‘survival sector’, the informal sector has provided 'helping hand employment'. Pre-crisis good managerial practices, innovation, the adoption of advanced technologies and training workers all provide an opportunity for firms to adapt their business model, as reflected by superior firm dynamics and post-crisis performance. Larger firms and mostly less vulnerable sectors such as fabricated metals and rubber have had more access to government support. It is likely that the government has chosen to support sectors with potentially better chances of survival rather than support the most vulnerable. Firms in pharmaceuticals were also recipients of support, which is sensible in a health crisis.
    Date: 2022–01–20
  10. By: Aysun Hiziroglu Aygun (Istanbul Technical University); Selin Koksal; Gokce Uysal
    Abstract: This paper investigates how the pandemic affected the labor market in Turkey, using a unique dataset collected via face-to-face interviews in September and October 2020. Relying on the retrospective nature of our dataset, we study a broad set of outcome variables to identify the most affected groups in labor market during the first wave of COVID-19. We contribute to the literature by providing evidence from a developing country which has long-lasting structural problems in its labor market such as gender divide in paid work and high informal employment. Our results indicate that, being a woman, having low education levels and having children at home were important risk factors in terms of labor market outcomes during the pandemic. At the intersection, women with children who did not have a high school degree are found be the most vulnerable group as they are more likely drop out of employment and to report a loss in income and in hours of paid work. Self-employment and informal employment are emerged as other risk factors contributing to the vulnerability in labor market. Our findings provide insightful evidence on discussing the effectiveness of job protection policies that cover only formal employment and disregards the gender imbalances in labor force in Turkey.
    Date: 2022–01–20
  11. By: Meagher, Kate
    Abstract: This article challenges the role of COVID-19 crisis narratives in shaping social policy choices in Africa. The COVID-19 pandemic has focused attention on Africa’s vast informal economies -- both as a symbol of the continent's intense vulnerability to the ravages of the pandemic, and as a puzzle in the face of the uneven and limited effects Coronavirus across the continent. Indeed, an examination of statistical and documentary evidence reveals an inverse relationship between COVID-19 fatalities and the size of African informal economies, and a perverse relationship between best-practice COVID social protection responses and levels of COVID mortality. Scrutinizing the evidence behind African COVID crisis narratives raises questions about the appropriateness of donor-led digitized social protection paradigms to social needs in highly informalized low resource environments. This article highlights the role of crisis narratives as an exercise of power geared to remastering, homogenizing, and reimagining African informal economies in ways that facilitate particular types of development intervention, side-lining alternative, more socially grounded policy perspectives. Through a closer examination of historical and contemporary realities in Africa’s vast and varied informal economies, the article emphasizes the need for transformative rather than palliative approaches to social policy that privilege local livelihood needs over global policy agendas, turning COVID-19 from a crisis into an opportunity for decolonizing African social policy.
    JEL: J1
    Date: 2022–11–01
  12. By: Sam Njinyah (Manchester Metropolitan University, UK); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: The purpose of this paper is to examine the relationship between a firm starting operation informally and its future innovation and whether this relation is moderated by institutional support (having access to finance from financial institutions to run their business). Data from the World Bank Enterprise Survey on 30 Eastern European and South-East Asian countries were analysed using probit regression analysis. The findings show that there is a positive significant relationship between firms that start operations informally and the firms’ innovation and that such effect persists over time. We found that this relationship is stronger if the firms can gain access to finance to expand their business activities. Finally, our result shows that such a relationship is based on the type of innovation being pursued by the firm. By examining the moderation effect of access to finance on starting a business informally, we provide an alternative explanation to policymakers on how to deal with informal firms to benefit from their contribution to growth.
    Keywords: Informality/unregistered firms, Innovation, Institutions, and Eastern European and South East Asia
    Date: 2022–01
  13. By: Kishan Shah (Center for International Development at Harvard University)
    Abstract: This report analyzes the causes and consequences of South Africa’s high rates of unemployment and the unique nature of labor market exclusion in the country. It leverages a combination of new quantitative analysis using South African datasets and international datasets for benchmarking, together with synthesis of existing literature and case studies. The goal is to: (1) characterize the challenge of labor market exclusion in South Africa, (2) identify ways in which this is similar and different to other countries, (3) understand what drives the unique challenges of the labor market in South Africa, and (4) narrow down what policy areas are most important to address the underlying drivers. This report takes a diagnostic approach to understand the causes of South Africa’s unique pattern of low informality.
    Keywords: Poverty, Inclusive Growth, Skills & Human Capital
    Date: 2022–09
  14. By: Kosmas, Petros; Theocharous, Antonis; Ioakimoglou, Elias; Vatikiotis, Leonidas; Giannoulis, Petros; Panagopoulou, Maria; Lamprianou, Lamprianos; Andreev, Hristo; Vatikioti, Aggeliki
    Abstract: This research study utilises a mixed design model to empirically measure and address the phenomenon of precarious work and precariousness in Cyprus. For the purposes of this study precariousness is perceived as a condition in which people face specific dangers, risk of disease or accident, material deprivation and poverty. Furthermore, as a result of precarious employment, insufficient income and lack of property, these individuals are not able to cope or be exposed to prolonged periods of unemployment and its subsequent social risks and dangers. By analysing data from the EU-SILC (2020) for Cyprus, the characteristics of precarious employees were identified, along with the factors contributing to precariousness. The majority of precarious workers in Cyprus were women, immigrants and young people. Following this, precarity was examined as a condition in which precariousness and economic vulnerability intersect and interact. Precarious workers accounted for 9,5% of all employees in 2019, whereas those in precarity (i.e., precarious and economically vulnerable) amounted for 4,4% of all employees. The present research and its empirics contribute to the discussion of the phenomenon of precarious work and precariousness by introducing new variables and introducing new empirical approaches to the examination of precarious employment and precariousness. The results of this study are intended to provide stakeholders with an enhanced understanding of the phenomenon which will ultimately lead to new theoretical and policy avenues towards its reduction and elimination.
    Keywords: precarious work; precariousness; vulnerability; Cyprus
    JEL: R14 J01 N0
    Date: 2022–09
  15. By: Jan Brzozowski (Jagiellonian University, Cracow, Poland.); Nicola Daniele Coniglio (University of Bari Aldo Moro, Italy)
    Abstract: International migration represents a potential channel for the transmission of norms, attitudes, and values back to the home countries. In this paper, we explore how the international migration of individuals affects tax morale and aversion to the free-riding of their household members left in the home country. We use a rich longitudinal household-level database which is representative of Polish society in the period 2007- 2015 — one of the most important countries of emigration in the EU — and allows us to observe social attitudes and values of individuals before and after the actual migration of a member of the household. Our results show that having a migrant in the household has a significant and positive effect on tax morale and increases aversion toward free-riding of those who stay put. We demonstrate that the transmission of this important form of social remittances crucially depends on the characteristics — gender, level of education, role in the household — of both those who migrate and those who stay put within the household. The identification of the effects relies on individual-level longitudinal data which allows us to rule out any time-constant confounding factor affecting both international migrations of family members and individual attitudes toward tax avoidance.
    Keywords: international migration, social remittances, values’ transfer, tax morale
    JEL: D83 F22 F24 H26 P20 Z10
    Date: 2022–12
  16. By: Acosta, Matias
    Abstract: Este trabajo explora la relación entre pobreza multidimensional e informalidad laboral contextualizándolas en la economía popular Argentina, la cual concentra a más de cuatro millones de trabajadores/as. En América Latina y, particularmente, en Argentina se han implementado un gran número de políticas para fomentar la formalización de trabajos populares como estrategia de desarrollo social. Esta monografía cuestiona cómo afecta la formalización del trabajo informal independiente de los barrios populares a la pobreza y sus dimensiones, considerando que su mera existencia constituye una violación a los derechos humanos inherentes a toda persona. Teniendo en cuenta el marco teórico de mercados informales multisegmentados y en base a una revisión sistemática exploratoria de la literatura internacional y el Registro Nacional de Trabajadores/as de la Economía Popular, utilizo un método mixto para indagar y comprender las posibles consecuencias de la inserción laboral de trabajadores/as individuales de barrios populares a su situación de pobreza. Combino esta base teórica con un análisis sobre la política de Monotributo Social en Argentina desde sus comienzos en 2004 hasta el 2020, con el fin de formular recomendaciones que permitan mejorar las políticas de inserción laboral en clave de derechos humanos que contemplen la complejidad del entramado social y popular.
    Date: 2021–06–27
  17. By: Actis Di Pasquale, Eugenio; Gallo, Marcos Esteban
    Abstract: En el presente artículo se pretende analizar el impacto de la pandemia sobre el mercado de trabajo argentino y su incidencia en la ciudad de Mar del Plata, tomando en cuenta los condicionantes que acaecían en nuestra sociedad a inicios de 2020 debido a las políticas macroeconómicas de corte neoliberal implementadas entre 2015 y 2019. En rigor, el mercado de trabajo se encontraba deteriorado y segmentado, con un elevado porcentaje de informalidad tanto a nivel local como nacional. En este sentido, el abordaje se realiza a partir de la evolución de las tasas básicas del mercado de trabajo, la proporción de las principales categorías ocupacionales y la cantidad de trabajo registrado, segmentando la información por sexo. Los resultados obtenidos permiten dar cuenta del impacto diferencial entre mujeres y varones, representado en la menor recuperación del empleo femenino, empujado principalmente por trabajo por cuenta propia.
    Keywords: Segmentación del Mercado de Trabajo; Brecha de Género; Impacto Económico; Aislamiento Social; COVID-19; Mar del Plata; Argentina;
    Date: 2022–06

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