nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2023‒11‒06
eight papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. Exposure or Income? The Unequal Effects of Pollution on Daily Labor Supply By Hoffmann, Bridget; Rud, Juan Pablo
  2. Labor Market and Macroeconomic Dynamics in Latin America Amid COVID: The Role of Digital Adoption Policies By Nuguer, Victoria; Finkelstein-Shapiro, Alan
  3. Labor Informality and Market Segmentation in Senegal By Carlos Rodríguez-Castelán; Emmanuel Vazquez
  4. Unintended Consequences of Youth Entrepreneurship Programs: Experimental Evidence from Rwanda By Blimpo, Moussa P.; Pugatch, Todd
  5. Multidimensional tax compliance attitude By Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno
  6. DYNAMICS OF THE POPULATION'S ATTITUDE TO THE NON-CRIMINAL SHADOW ECONOMY By Pokida, Andrey (Покида, Андрей); Zybunovskaya, Natalia (Зыбуновская, Наталья)
  7. Disentangling Business- and Tax-Motivated Bilateral Royalty Flows By Lejour, Arjan; Riet, Maarten van ‘t
  8. Customary Land Conversion in African Cities By Picard, Pierre M.; Selod, Harris

  1. By: Hoffmann, Bridget; Rud, Juan Pablo
    Abstract: We use high-frequency data on fine particulate matter air pollution (PM 2.5) at the locality level to study the effects of high pollution on labor supply decisions and hospitalizations for respiratory disease in the metropolitan area of Mexico City. We document a negative, non-linear relationship between PM 2.5 and same-day labor supply, with strong effects on days with extremely high pollution levels. On these days, the average worker experiences a reduction of around 7.5% of working hours. Workers partially compensate for lost hours by increasing their labor supply on days that follow high-pollution days. Informal workers reduce their labor supply less than formal workers on high-pollution days and also compensate less on the following days. This suggests that informal workers may experience greater exposure to high pollution and greater reductions in labor supply and income. We provide evidence that reductions in labor supply due to high pollution are consistent with avoidance behavior and that income constraints may play an important role in workers' labor supply decisions.
    Keywords: Air pollution;Informal workers;Mexico
    JEL: Q52 Q53 J22 J46 I14
    Date: 2022–02
  2. By: Nuguer, Victoria; Finkelstein-Shapiro, Alan
    Abstract: We study how policies that facilitate firm digital adoption shape the labor market and economic recovery from COVID-19 in a search and matching framework with firm entry and exit where salaried firms can adopt digital technologies and the labor market and firm structure embodies key features of Latin American economies. Using Mexico as a case study, we first show that the model quantitatively replicates the dynamics of the labor market and output at the onset of the COVID recession and in its aftermath, including the sharp decline in labor force participation and informal employment that is unique to the COVID recession. We then show that a policy-induced permanent reduction in the barriers to adopting digital technologies introduced at the trough of the recession bolsters the recovery of GDP, total employment, and labor income, and leads to a larger expansion in the share of formal employment compared to the no-policy scenario. In the long run, the economy exhibits a long-run reduction in total employment and labor force participation, but higher levels of GDP and labor income, greater average firm productivity, a larger formal employment share, and a marginally lower unemployment rate.
    Keywords: Business cycles and labor search frictions;Self-employmentand informality;Unemployment;Labor force participation;Information and communications technologies (ICT);Latin America
    JEL: E24 J23 J24 J64 O14
    Date: 2022–04
  3. By: Carlos Rodríguez-Castelán (World Bank, IZA); Emmanuel Vazquez (CEDLAS-IIE-FCE-UNLP)
    Abstract: Understanding the selection of workers into informality is a policy priority to design programs to increase formalization across Sub-Saharan Africa, where nine out of ten workers are informal. This paper estimates a model of self-selection with entry barriers into the formal sector to identify the extent of involuntary informality in Senegal, a representative country in terms of levels of informality in West Africa and with one of the most rigid labor markets in the world. Results show that the desire of being formal is greater for workers with formal education, married and with a lower proportion of children under the age of 5 living in the household. The individual's preference for the formal sector also grows with age at a decreasing rate. Results also show that labor informality is mainly a voluntary phenomenon with 30 percent of informal workers being involuntarily displaced into the informal sector. Results are robust to different model specifications, definitions of labor informality and heterogenous groups of workers.
    JEL: C21 C25 I32
    Date: 2023–10
  4. By: Blimpo, Moussa P.; Pugatch, Todd
    Abstract: The persistently high employment share of the informal sector makes entrepreneurship a necessity for youth in many developing countries. We exploit exogenous variation in the implementation of Rwanda's entrepreneurship education reform in secondary schools to evaluate its effect on student economic outcomes up to three years after graduation. Using a randomized controlled trial, we evaluated a three-year intensive training for entrepreneurship teachers, finding pedagogical changes as intended and increased entrepreneurial activity among students. In this paper, we tracked students following graduation and found that increased entrepreneurship persisted one year later, in 2019. Students from treated schools were six percentage points more likely to be entrepreneurs, an increase of 19 percent over the control mean. However, gains in entrepreneurship faded after three years, in 2021. Employment was six percentage points lower in the treatment group. By some measures, income and profits were lower in the treatment group, with no robust differences in these outcomes overall. Lower incomes and profits were concentrated among marginal students induced into entrepreneurship by the program. Youth entrepreneurship programs may therefore steer some participants away from their comparative advantage. Nonetheless, the program increased university enrollment, suggesting the potential for higher long run returns.
    Keywords: entrepreneurship education, youth employment, secondary school, pedagogy, randomized controlled trials, Rwanda
    JEL: I25 I26 I28 J24 O12 O15
    Date: 2023
  5. By: Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno
    Abstract: Citizen tax compliance significantly dictates governmental fiscal capacities. Recognizing this, understanding the determinants of tax compliance remains paramount. While existing literature frequently isolates and tests individual determinants such as audit likelihood, penalty structures, tax morale, and perceived fairness, an integrative, bottom-up approach addressing the spectrum of tax compliance attitudes has largely been overlooked. Addressing this gap, our study constructs a multidimensional Tax Compliance Attitude Inventory (TCAI) by harmonizing real taxpayer responses with established theoretical underpinnings. Through factor analysis, we delineate four pivotal factors: (i) morale, (ii) monetary benefit, (iii) deterrence, and (iv) authority. Notably, morale and deterrence emerge as consistent influencers of tax compliance. Embracing this multidimensionality, our cluster analysis demarcates two distinct taxpayer personas: (a) moralists and (b) rationalists. Our findings underscore that moralists consistently exhibit higher tax compliance than their rationalist counterparts. We further present a streamlined classification algorithm to operationalize the TCAI in new datasets, minimizing item count. This work serves as a seminal contribution, offering both academia and tax authorities a robust, quantitative tool to gauge tax compliance attitudes.
    Keywords: Behavioral economics, compliance attitudes, compliance behavior, tax evasion, heterogeneous individuals
    JEL: C38 C83 D91 H26
    Date: 2023
  6. By: Pokida, Andrey (Покида, Андрей) (The Russian Presidential Academy of National Economy and Public Administration); Zybunovskaya, Natalia (Зыбуновская, Наталья) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The scientific report presents a study conducted by the Research Center for Socio-Political Monitoring of the Institute of Social Sciences of the RANEPA. The relevance of research. Involvement of a significant part of the employed population in shadow processes. The demand for the shadow market of goods and services among the population. The need to obtain regular operational scientific information about the processes taking place in the shadow labor market in the new socio-economic reality, as well as the effect of the measures already taken aimed at limiting the shadow labor market. The purpose of the study is to analyze and evaluate of the dynamics of the prevalence of shadow forms of relationships in the modern labor market. The subject of the study is the main trends in the shadow labor market in modern conditions. The main research method is an all-Russian sociological survey of the employed Russian population and a comparison of the results obtained with the results of previous surveys. Based on the results of the study, an analysis and assessment of the attitude of the employed population to non-criminal shadow economic activity, from the point of view of the involvement of the population in the shadow labor market and the consumption of products produced on it. The study allows us to draw the following conclusions. Over the past year, there has been a decrease in the involvement of workers in various forms of shadow relations in the labor market. The decrease in the participation of respondents is recorded for various forms of their employment in the shadow labor market, including main and additional work. A significant part of the respondents still believe that informal (shadow) economic activity brings both benefits and harm to society in equal measure. This rather loyal attitude of employed citizens to informal employment and tax evasion supports the shadow labor market and creates prerequisites for their personal participation in shadow processes. The results of the study demonstrate a certain effect of the activities of state authorities to limit the participation of workers in the shadow labor market. Among those engaged in private practice, the attractiveness of using the new tax regime (NPD) is noted. At the same time, the fear of changing the conditions of the experiment act as constraining factors for its use among potential users. The results of the study demonstrate that awareness of the illegality of non-payment of taxes and the need to bear responsibility in this case is gradually increasing among citizens. Scientific novelty lies in obtaining up-to-date sociological information about the main trends in the field of noncriminal shadow economic activity, including the dynamics of population involvement in the shadow labor market. The recommendations based on the results of the study are related to the need to adjust management decisions in the field of stimulating official employment and limiting the participation of the population in the shadow labor market.
    Keywords: shadow labor market, employed in private practice, employees, informal wages, consumers of goods and services of the shadow market, restrictive measures, sociological survey of the employed population
    JEL: J46
    Date: 2023–08–28
  7. By: Lejour, Arjan (Tilburg University, Center For Economic Research); Riet, Maarten van ‘t
    Keywords: bilateral royalty flows; international tax avoidance; treaty shopping; withholding tax; tax havens
    Date: 2023
  8. By: Picard, Pierre M. (University of Luxembourg); Selod, Harris (World Bank)
    Abstract: We propose an urban land use model to discuss the conversion of customary agricultural land to formal and informal residential land in a developing country city. Because customary land sales are insecure, migrant buyers face a risk of eviction, which affects land markets in non-trivial ways. Both tenure risk and asymmetric information cause the city extent and population to be too small. Empirical tests of the model for Bamako, Mali, confirm the existence of tenure insecurity and information asymmetry in the primary but not in the secondary land market, consistently with information revelation after initial sales by customary holders.
    Keywords: urbanization, land markets, property rights, land tenure formalization, market failure
    JEL: O12 R14 P14
    Date: 2023–09

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