nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒01‒30
eight papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Negotiations by workers in the informal economy By Schmidt, Verena,; Webster, Edward,; Mhlana, Siviwe,; Forrest, Kally,
  2. Firm size distribution and informality effects of a revenue-dependent tax policy By Alvarez, Bruna; Pessoa, João Paulo; Souza, André Portela
  3. Firms, Informality and Institutions. The case of Colombia By Fernández, C
  4. The Propagation of Unethical Behaviours: Cheating Responses to Tax Evasion By Andrea F.M. Martinangeli; Lisa Windsteiger
  5. Refining Public Policies with Machine Learning: The Case of Tax Auditing By Marco Battaglini; Luigi Guiso; Chiara Lacava; Douglas L. Miller; Eleonora Patacchini
  6. Nontariff barriers, trading companies and customs duties evasion By Mattos, Enlinson; Bressan, Rafael
  7. How can different currency regimes affect the willingness to pay tax? Tax morale evidence from Zimbabwe By Nyamapheni, Joseph; Robinson , Zurika
  8. Underground struggles: improving working conditions in artisanal and small-scale gold mining: lessons from Mindanao, Philippines By Robles Mengoa, Eugenia; Geenen, Sara; Verbrugge, Boris; Besmanos, Beverly; López Valverde, Rafael

  1. By: Schmidt, Verena,; Webster, Edward,; Mhlana, Siviwe,; Forrest, Kally,
    Abstract: Abstract.
    Date: 2022
  2. By: Alvarez, Bruna; Pessoa, João Paulo; Souza, André Portela
    Abstract: We study how revenue-dependent tax policies affect wages, productivity, and welfare in an economy where formal and informal firms co-exist. We use a dynamic entrepreneurial choice model and bring it to the data to assess the effects of the Brazilian Simples, a simplified tax scheme that reduces the tax burden of small- and medium-sized firms. We find that the Simples increases firm formalization, raising the demand for labor and benefiting workers. Meanwhile, tax collection falls as some formal firms withhold production to pay lower taxes. Overall, productivity (weighted by firm size), per capita production, and welfare fall. Alternative policies that reduce the tax gap between small and large firms perform better in welfare and tax collection terms.
    Date: 2022–12–19
  3. By: Fernández, C
    Abstract: This paper illustrates how two well indented policies to reduce informality as the income tax waiver for small firms, and the income tax deduction of labor cost, end up generating a large amount of small firms hiring workers without a formal contract. This paper also shows the difficulties to reduce informality amidst the complex regulatory environment of Colombia. Policies oriented to reduce labor informality have a limited impact and are costly from the fiscal point of view, policies oriented to reduce business informality are more effective, but does not necessarily reduce labor informality if they are directed towards low productivity firms, because such firms do not have incentives to hire formally. The methodology used to illustrate these facts was the estimation of Ulyssea (2018) for the case of Colombia with the mentioned institutional constraints and a minimum wage. The data base used compiles most of the firm information available in the country (Fernández, 2021).
    Keywords: Informality, Firm informality, Business informality, Informal labor market, Taxonomy of informality, Policy recommendations for informality
    JEL: D22 D58 E24 J21 J46 O17
    Date: 2022–12–13
  4. By: Andrea F.M. Martinangeli; Lisa Windsteiger
    Abstract: We explore cheating in a die roll task in response to information about tax evasion in a large-scale experiment on a representative sample of the Italian population. We thus generalise laboratory findings on conditional behaviours (cooperation, cheating) to uncover their real-world bearing in the context of tax compliance. Cheating is conditioned on information about tax evasion, as is the perceived tax compliance norm. We uncover asymmetries along the income gradient: Conditional cheating responses are driven by information about tax evasion on behalf of top income earners, while perceived tax compliance norms are driven by information about tax evasion among low income earners. Instrumental variable investigations of posterior beliefs about tax evasion strengthen these results, and reveal moreover that information about top income tax evasion erodes social trust, reinforces beliefs that wealth accumulation only occurs at others’ expense, and increases beliefs that a fundamental role of the State is that of ensuring an equitable distribution of income.
    Keywords: tax evasion, tax avoidance, conditional cooperation, cheating, survey experiment
    JEL: D01 D31 D63 H23 H26
    Date: 2022
  5. By: Marco Battaglini; Luigi Guiso; Chiara Lacava; Douglas L. Miller; Eleonora Patacchini
    Abstract: We study the extent to which ML techniques can be used to improve tax auditing efficiency using administrative data, without the need of randomized audits. Using Italy's population data on sole proprietorship tax returns, audits and their outcome, we develop a new approach to address the so called selective labels problem - the fact that a ML algorithm must necessarily be trained on endogenously selected data. We document the existence of substantial margins for raising revenue from audits by improving the selection of taxpayers to audit with ML. Replacing the 10% least productive audits with an equal number of taxpayers selected by our trained algorithm raises detected tax evasion by as much as 38%, and evasion that is actually payed back by 29%.
    JEL: H2 H20 H26
    Date: 2022–12
  6. By: Mattos, Enlinson; Bressan, Rafael
    Abstract: This paper leverages an exogenous tariff reform in Brazil with rich administrative data to document the elasticity of customs duties evasion (ECDE) for the universe of importers in Brazil. We focus on the role of two modulators of ECDE: (i) nontariff barriers (NTB) and (ii) trading companies. Our findings are threefold. First, we estimate the elasticity of misreported imports to be larger than that in comparable literature. Controlling for misclassification, our results suggest an increase of 2.43% in evasion for each percentage point increase in tariff rate for missing values and 1.45% for missing quantities. Second, NTBs can reduce the elasticity of evasion up to 0.91 and -0.06, for value and quantity, respectively. This finding reinforces the NTB’s stricter enforcement role due to its papertrail. Third, we find no evidence that trading companies evade differently than other importers. Auditing policies and reputation concerns are investigated.
    Date: 2022–12–19
  7. By: Nyamapheni, Joseph; Robinson , Zurika
    Abstract: The article investigates tax morale during different economic milieus, going hand in hand with the introduction of different currency regimes. It was guided by econometric research and data were collected using questionnaires from the 2010-2014 and 2017-2020 World Values Survey (WVS). For Zimbabwe, Wave 6 and Wave 7 had a sample size of 1500 and 1200 respectively. The article?s dependent variable, tax morale and independent variables included marital status, age, income level, employment and religion among others, and analysed them using the Ordered Logit Model. The article concludes with an understanding of how tax morale and its determinants is crucial for governments in their bid to boost voluntary compliance. Also, different economic milieus for a particular country affect the level of tax morale significantly. Tax morale was established to be high when Zimbabwe was experiencing economic growth due to the introduction of multi-currency, herein called the dollarization period, and the opposite was true for the post-dollarization era. Corruption, which is a menace under study, has proven to be an important factor that influences tax morale. Results of all the models show that demographic factors have little effect on tax morale. The article introduced an important variable of hunger in its analysis of determinants of tax morale. The article showed that there is a negative relationship between hunger and tax morale for Zimbabwe in both economic situations. Based on the findings, policy makers should consider the eradication of corruption and hunger in order to boost tax morale, which in turn improves tax compliance. Also, policy makers should include improvement in the perception of democracy in the mix of enhancement strategies of tax compliance.
    Keywords: Determinants; Tax morale; Order Logit Model; Zimbabwe
    Date: 2022–12
  8. By: Robles Mengoa, Eugenia; Geenen, Sara; Verbrugge, Boris; Besmanos, Beverly; López Valverde, Rafael
    Abstract: In 2019, the InForMining project of the Institute of Development Policy (IOB, University of Antwerp, Belgium) carried out a survey in three artisanal small-scale gold mining (ASGM) areas in the Philippine region of Mindanao (provinces of Agusan del Sur, South Cotabato, and Davao de Oro). The objective of this survey was to understand the profile of the informal miner and the work he/she performs from his/her own experience. In this sense, we were able to gather data that allowed us to identify important challenges faced by the three mining provinces, which are analyzed in this policy brief. This document suggests some recommendations for sustainable solutions, that were validated and adjusted by the communities themselves.
    Keywords: Philippines, mining, working conditions, Mindanao, gold mining
    Date: 2022–08

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