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on Informal and Underground Economics |
| By: | Naugler, Alix |
| Abstract: | This paper examines the unintended consequences of size-dependent formalization policies that raise the cost of informality for firms, focusing on a provision in Vietnam’s Labor Code 2012. The policy sharply increases the financial penalty for firms with at least 10 formally contracted, paid employees that fail to comply with pre-existing labor regulations at this threshold. I develop a profit maximization model illustrating how this policy incentivizes firms to avoid compliance by substituting toward unregulated labor arrangements or partially formalizing. Using Vietnamese micro-, small-, and medium-enterprise panel data, I employ a difference-in-discontinuities design to estimate the causal effect of the increased financial penalty at the threshold. McCrary density tests indicate no evidence of bunching below the 10-formal paid employee threshold post-policy. Instead, firms adjusted along alternative margins: those just below the threshold increased their reliance on unpaid labor while those just above it registered with the government while employing informal workers. Firms just above the threshold also experienced profit and labor productivity gains. These findings show that threshold-based labor policies can lead to selective—rather than comprehensive—firm formalization, suggesting informality is restructured instead of reduced. |
| Keywords: | Industrial Organization |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404629 |
| By: | Brockmeyer, Anne; Garfias, Francisco; Suárez Serrato, Juan Carlos |
| Abstract: | Can the provision of public goods strengthen fiscal capacity and foster tax compliance in developing countries? We study this question using a large-scale randomized infrastructure investment in Mexico City and administrative property tax data. Despite substantial improvements in local amenities, property values, and economic conditions, we find no evidence that infrastructure investments increased tax compliance---even when the tax-benefit link was made salient. These null results hold across different measures, subgroups, and empirical strategies, and we can rule out even small causal effects. By precisely estimating the limits of reciprocity-based compliance, our findings refine the fiscal contract theory and challenge its applicability beyond narrow elites. Equipped with this evidence, policymakers can redirect efforts toward more effective approaches for strengthening state capacity, such as enforcement and administrative reform. |
| JEL: | H41 H71 O23 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19354 |
| By: | Duflo, Esther; Dupas, Pascaline; Kremer, Michael |
| Abstract: | In 2008, we randomly assigned secondary school scholarships among 2, 064 youths in Ghana. This paper exploits fifteen years of follow-up data to examine the impact of access to free secondary education on career trajectories over the first part of the life cycle. Winning a scholarship increases the probability of secondary school graduation from 45% (in the control group) to 73% (in the treatment group), and leads to an increase in knowledge and skills. However, the entry of secondary school graduates (with or without scholarship) in the labor market is very gradual, as many attempt, over many years, to qualify for tertiary programs that are gateways for government jobs. By 2023, 12% of females and 15% of males in the control group have completed a tertiary program. The scholarship increases this share by 11 percentage points for females, but not at all for males. We do not observe significant labor market impacts for men at any point. In contrast, earnings gains of around 24% arise in 2020 and grow to 30% in 2023 for female scholarship recipients, who are 6.7 percentage points (100%) more likely than non-recipients to have a government job by then. We use a simple Harris-Todaro style model of a dual labor market with credit constraints to (a) explain the gendered impacts and (b) discuss the impact that generalized free secondary education would be expected to have in general equilibrium, under different regimes of hiring in the government sector. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19344 |