nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒08‒14
five papers chosen by
Catalina Granda Carvajal
Banco de la República

  2. Fostering Decent Jobs in MENA Countries: Segmented Employment, Occupational Mobility and Formalising Informality By Philippe Adair; Vladimir Hlasny
  3. Does Competition from the Informal Sector Reduce Tax Compliance in the Formal Sector? Evidence from Ethiopia By Yimam, Seid; Asmare, Fissha; Moore, Mick
  4. The Impact of Natural Disasters on Informal Labor in Indonesia By Utsumi, Tomoko
  5. Size, heterogeneity and distributional effects of self-employment income tax evasion in Italy By Martina Bazzoli; Paolo Di Caro; Franceso Figari; Carlo V. Fiorio; Marco Manzo

  1. By: Philippe Adair (ERUDITE, University Paris-Est Créteil); Vladimir Hlasny (United Nations Economic and Social Commission for Western Asia)
    Abstract: We tackle the problems of labour market segmentation and low occupational mobility in MENA countries in relation to prospective formalisation policies. First, we provide an overview of the informal economy in its taxonomy, coverage and stylised facts, and drivers, across six MENA countries. Second, using longitudinal microdata from Labor Market Panel Surveys and COVID-19 MENA Monitors, we apply transition matrices and multinomial logistic regressions to analyse workers? occupational mobility according to their pre-existing status, age cohort, gender and other demographics. We find persistent segmentation and weak occupational mobility in all countries, suggesting that informal employment is not driven by choice on the labour supply side but by structural constraints on the demand side. Third, assessing the existing formalisation policies encapsulating distinct stick and carrot strategies, and business versus worker targeting, we find rather modest impacts. We submit that promoting social and solidarity enterprises, and extending microfinance to informal enterprises holds a promise for the creation of formal, decent jobs.
    Keywords: Formalisation policies; Informal employment; Segmentation; Transition matrices; Youth unemployment; Female labour force participation
    JEL: E26 J46 O17
    Date: 2022–10
  2. By: Philippe Adair; Vladimir Hlasny
    Date: 2023
  3. By: Yimam, Seid; Asmare, Fissha; Moore, Mick
    Abstract: It is widely believed that the existence of ‘informal sector’ enterprises that visibly do not pay direct taxes reduces the willingness of owners of formal, tax-registered enterprises to pay their own taxes. We call this the adverse evasion spillover hypothesis. It is for several reasons hard to test this hypothesis, especially in this most general form. We test a more focused version, with two components. One is that the levels of tax compliance of formal firms are reduced when those firms perceive that they are adversely affected by direct economic competition from informal enterprises. The other is that these effects are especially marked for smaller formal sector firms. Two particular procedures enabled us to collect the data needed to test these hypotheses in a satisfactory way. First, the Ethiopian Ministry of Revenue kindly gave us access to ten years of their administrative data relating to a representative sample of 408 tax-registered firms located in Addis Ababa. Because these records included information on whether firms had been penalised for attempts to understate their tax obligations, we were able to divide our sample into two groups of more and less compliant firms. We then surveyed the owners of those firms, adding in questions about their perceptions of the extent to which they felt adversely affected by competition from informal enterprises, but giving no hint that we were especially interested in tax compliance, or that we had access to their tax compliance record. Our two hypotheses were validated. The more that formal, tax-registered firms perceived that they faced market competition from informal enterprises, the lower were their levels of tax compliance. This adverse impact of perceived competition on tax compliance was greater for smaller formal, tax-registered enterprises.
    Keywords: Finance, Trade, Work and Labour,
    Date: 2023
  4. By: Utsumi, Tomoko
    Keywords: International Development, International Development, Labor and Human Capital
    Date: 2023
  5. By: Martina Bazzoli (Irvapp); Paolo Di Caro (Ministry of Economy and Finance of Italy); Franceso Figari (Bocconi University); Carlo V. Fiorio (University of Milan); Marco Manzo (Ministry of Economy and Finance of Italy)
    Abstract: We measure tax evasion in Italy by estimating a food expenditure equation that disentangles households with prevalent income from self-employment, which is self-declared, from those with mostly third-party reported income. By using a novel dataset that links the 2013 Italian Household Budget Survey with individual tax records over a period of 7 years, we reduce measurement error by a great extent. We also depart from the usual constant share of underreporting, showing that underreporting heterogeneity among self-employed is significant, and is larger for singles and for college-educated households. We show that self-employed workers in Italy exhibit a similar attitude to tax evasion as those in other developed countries. Therefore, we point to the structure of the economy for an explanation of why aggregate tax evasion in Italy is larger than in other developed countries. The estimated heterogeneity of underreporting behavior of households combined with the use of a tax-benefit microsimulation model have allowed us to shed light on the distributional effects of income tax evasion, showing that almost 73% of the missing revenue is attributable to tax-payers at the top of the income distribution.
    Keywords: ASSENTE
    Date: 2022–10

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