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on Informal and Underground Economics |
| By: | Sajid, Muhammad Hammad; Ali, Amjad; Jadoon, Atif Khan |
| Abstract: | This study explores the relationship between artificial intelligence, automation, and tax compliance and enforcement, focusing on the development and implementation of smart tax systems in various countries. Faced with persistent challenges such as tax evasion, non-compliance, and operational inefficiencies, many tax administrations worldwide have adopted emerging digital technologies to modernize their systems. The study employs a quantitative research design using secondary data to analyze trends in tax-to-gross domestic product ratios, voluntary compliance rates, and enforcement outcomes before and after the implementation of artificial intelligence. The findings indicate that integrating artificial intelligence and automation into tax processes leads to substantial improvements in compliance behavior, fraud detection, and revenue collection. Countries that have implemented electronic invoicing, predictive analytics, and intelligent audit tools have achieved greater enforcement capacity and improved taxpayer services, particularly where digital infrastructure and effective governance are present. While advanced economies typically lead in digital readiness and transformation, many emerging and developing countries are also making significant progress through automation, expanding their tax base, and increasing transparency. The study concludes that adopting smart tax systems is a crucial step toward more responsive, transparent, and data-driven governance. However, their effectiveness hinges on specific measures such as tailoring implementation strategies to each country’s digital maturity, enacting clear legal frameworks to govern automated decision-making, and ensuring continuous investment in digital infrastructure, cybersecurity, and capacity-building within tax authorities. |
| Keywords: | Artificial Intelligence, Tax Compliance, Smart Tax Systems, Automation, Revenue Collection |
| JEL: | O3 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127541 |
| By: | Minchung Hsu (National Graduate Institute for Policy Studies, Tokyo, Japan); Samuel Leyton (Sophia University, Tokyo, Japan) |
| Abstract: | This study builds on recent research on international comparisons of wage-experience profiles (eg. Lagakos et al., 2018, and Jedwab et al., 2023), which finds that wage growth is significantly lower in developing economies. We aim to provide a deeper insight into this issue. Using rich longitudinal data from Chile, the Social Protection Survey (EPS) linked to administrative pension contribution records, we construct precise measures of formal and informal work experience and estimate their distinct contributions to wage dynamics. This dataset, the longest available panel for a developing country, allows for a detailed analysis of how sector-specific experiences influence life-cycle wage growth. We undertake a life-cycle framework with human capital accumulation to guide our empirical strategy. We find that both the speed of human capital accumulation and the return to human capital are significantly lower with informal employment, while the wage growth with formal employment experience is comparable to that in developed economies. We also find that workers in formal jobs are far more likely to receive on-the-job training, helping to explain the divergence in human capital accumulation across sectors. Furthermore, the estimation framework provides a foundation for structural life-cycle models that incorporate sector-specific human capital accumulation and endogenous employment transitions between formal and informal sectors. |
| Keywords: | Labor informality; life-cycle wage growth; human capital |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ngi:dpaper:25-14 |
| By: | Fisman, Raymond; Guriev, Sergei; Ioramashvili, Carolin; Plekhanov, Alexander |
| Abstract: | We empirically investigate the relationship between corruption and growth using a firm-level dataset that is unique in scale, covering almost 88, 000 firms across 141 economies in 2006–20, with wide-ranging corruption experiences. The scale and detail of our data allow us to explore the corruption-growth relationship at a very local level, within industries in a relatively narrow geography. We report three empirical regularities. First, firms that make zero informal payments tend to grow slower than bribers. Second, this result is driven by non-bribers in high-corruption countries. Third, among bribers, growth is decreasing in the amount of informal payments—in both high- and low-corruption countries. We suggest that this set of results may be reconciled with a simple model in which endogenously determined higher bribe rates lead to lower growth, while non-bribers are often excluded entirely from growth opportunities in high-corruption settings. |
| JEL: | D20 O12 |
| Date: | 2024–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123951 |
| By: | Moustafa Feriga (University of East Anglia); Chahir Zaki (University of Orleans) |
| Abstract: | The informal sector is perceived as a buffer in crisis times in developing countries. Yet, it is generally characterized by low wages and high vulnerability. This paper explores how wages of informal workers react in the wake of a trade shock, with a special focus on the Egyptian case. To do so, we use worker and industry-level data for the tradeable sector from the Egyptian labor market panel survey between 1998 and 2006, a period during which Egypt experienced a significant trade liberalization wave. We find a significant effect on the formality wage premium where a 1-percentage point reduction in trade protection leads to 0.45 percentage points rise, on average, in the wage differential between formal and informal workers. The effect holds under different specifications and when the exogeneity assumption of industry protection is relaxed. |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1801 |
| By: | Enja Marie Herdejürgen, (Paderborn University); Sumaya Islam (Paderborn University); Martin Schneider (Paderborn University) |
| Abstract: | Young adults in Africa face a precarious labor market situation, as the demand for jobs far exceeds the supply. Previous training methods targeting formal employment have proven ineffective in this context. We propose that alternative training methods focusing on learners’ mindsets enable young adults to tackle their difficult labor market situation through entrepreneurship and self-employment. EDTECH trains young adults in Africa in a context-sensitive manner. The primary objective is not to secure formal employment for learners, but rather to promote a growth mindset among learners, enabling them to improve their economic situation. With the data provided by EDTECH, we conducted a field experiment among the participants and a control group to measure the impact of its learning and training program. Our findings show that learners address urgent community issues through problem-based and blended learning. More generally, this paper shows that this training package can act as a long-term, immersive growth mindset intervention to enable the participants to enhance either their chances of regional employability or to engage themselves in small or micro levels of entrepreneurship. Based on these results, we suggest EDTECH could serve as a role model for young adult training and education in Africa. |
| Keywords: | Entrepreneurship Education, Growth Mindset, |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:170 |
| By: | Asher, Sam (Imperial College London Business School); Jha, Kritarth (Development Data Lab); Novosad, Paul (Dartmouth College); Adukia, Anjali (University of Chicago); Tan, Brandon (IMF) |
| Abstract: | We study residential segregation and access to public services across 1.5 million urban and rural neighborhoods in India. Muslim and Scheduled Caste segregation in India is high by global standards, and only slightly lower than Black-White segregation in the U.S. Within cities, public facilities and infrastructure are systematically less available in Muslim and Scheduled Caste neighborhoods. Nearly all regressive allocation is across neighborhoods within cities at the most informal and least studied form of government. These inequalities are not visible in the aggregate data typically used for research and policy. |
| Keywords: | segregation, neighborhoods, place-based policies, marginalized groups, infrastructure, access to public services, electricity, schools, sanitation, India, Muslims, Scheduled Castes |
| JEL: | H4 H41 I24 J15 O15 R12 R13 R23 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18403 |
| By: | Rashmi Ahuja; Sugata Marjit |
| Abstract: | Firms differ in the extent to which they get access to formal and informal credit sources in developing economies. In developing economies, banks ration credit due to higher perceived borrower risk, information asymmetry, lack of collateral, and market inefficiencies. Due to financial constraints in formal credit markets, firms often seek alternative funding from informal sources such as friends, family, and moneylenders, even though it comes at a higher borrowing cost. Financial development can help expand access to credit by reducing structural barriers and mitigating the effects of credit rationing. To analyze these dynamics, our paper developed a theoretical model that examines the relationships among credit rationing, financial development, and informal credit markets, and their impact on trade patterns. Financial capital is introduced into the standard workhorse of trade theory, i.e., Dixit-Stiglitz-Krugman (DSK) model of international trade under monopolistic competition. We showed that financial development does not affect trade and production outcomes when firms have access only to formal credit markets, whereas when firms gain access to informal credit markets alongside credit rationing, it increases the number of varieties produced but at the cost of lower output per variety. However, the higher the interest gap between the formal and informal credit markets, the higher will be the marginal impact of the degree of financial development on the pattern of trade. We have also conducted a small empirical motivational exercise to support our findings from theoretical model. |
| Keywords: | financial development, informal finance, credit rationing, product variety |
| JEL: | F10 G21 O16 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12516 |
| By: | Melecky, Martin; Singer, Dorothe |
| Abstract: | This paper investigates the determinants of saving behavior—both formal and informal—using individual-level data from the 2021 Global Findex database, covering more than 139, 000 adults across 138 countries. The analysis employs a Heckman selection model to distinguish between the decision to save any money and the decision to save formally using a financial account. Key findings reveal that individuals in the poorest 40 percent of households, those with only primary education, and those out of the workforce are significantly less likely to save and even less likely to save formally. While women are equally likely as men to save any money, they are less likely to save formally. Country-level factors also play a critical role. Tax-incentivized savings schemes are associated with an increase in formal saving and an increase in saving overall. Deposit insurance for e-money accounts is positively correlated with both saving any money and saving formally, particularly among low-income individuals. Conversely, a higher share of government-owned bank assets is associated with lower saving rates, and Muslim-majority countries exhibit significantly lower formal saving, likely due to religious constraints on interest-bearing accounts. Policy recommendations include expanding tax-incentivized savings schemes, extending deposit insurance to digital financial services, promoting financial literacy, encouraging wage payments into accounts, reassessing the role of state-owned banks, and, where relevant, supporting Sharia-compliant financial products. Targeted interventions for women and low-income groups are essential to closing persistent gaps in financial inclusion. |
| Date: | 2026–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11322 |