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on Informal and Underground Economics |
| By: | Becerra, Oscar; Briglia, Luigi-Maria; Leon-Diaz, John; Valencia, Óscar; Luetticke, Ralph |
| Abstract: | How should governments design progressive labor-income taxes when workers can shift labor supply into untaxed informal work? Using household surveys for Brazil, Colombia, Mexico, and Peru, we document steep gradients in informality, employment, and unemployment across the income distribution. We analyze non-linear tax schedules in a heterogeneous-agent model with search frictions, savings, and an endogenous formal — informal labor-supply margin. Progressivity operates through an inclusion margin at the bottom-negative income taxes increase formal attachment — and an evasion margin at the top, where higher marginal tax rates shift labor supply into the untaxed sector. These opposing forces imply that both welfare and formality are hump-shaped in progressivity; in a calibration to Mexico, the welfare-maximizing degree of progressivity is about five times the current level. |
| Keywords: | Informality; Progressive taxation; Developing countries |
| JEL: | E26 H24 H26 O17 D31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21229 |
| By: | Nils H. Lehr; Johanna Schauer; Hugo Tuesta |
| Abstract: | How does informality shape the impact of minimum wage policy? We study this question using evidence from Mexico’s 145% real increase in the minimum wage since 2016, together with a general equilibrium model featuring endogenous informality and household heterogeneity. Reduced-form estimates of the implemented increases indicate limited effects on employment and formalization, alongside modest wage gains at the bottom of the formal wage distribution that arguably reflect incomplete enforcement. The calibrated model reproduces these patterns but predicts that, under full enforcement, higher wage floors generate nonlinear effects: the share of firms reallocating toward informality rises sharply, lowering productivity and aggregate welfare. These losses fall disproportionately on low-skill households, who bear the brunt of the reduction in transfers caused by lower tax revenue yet, as predominantly informal workers, gain little directly from the minimum wage. The minimum wage’s effectiveness as a redistributive tool is therefore limited. |
| Keywords: | Minimum wage; informality; labor markets; welfare; IMF working papers; informality Constraint; household heterogeneity; minimum wage policy; endogenous informality; Minimum wages; Wages; Employment; Labor supply; South America; Central America; Caribbean |
| Date: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/126 |
| By: | Brockmeyer, Anne (World Bank Group); Gerard, Francois (UCL & IFS); Ulyssea, Gabriel (UCL); Wu, Linda (UBC); Bergolo, Marcelo (IECON, Universidad de la República); Ceni Gonzalez, Rodrigo (Universidad de la Republica); Kirui, Benard (Privatisation Commission); Lopez-Luzuriaga, Andrea (IADB and George Washington University); Morales, Leonardo (Central Bank of Colombia); Otero-Cortés, Andrea (Central Bank of Colombia); Riedel, Nadine (University of Munster); Tapia, Matías (Central Bank of Chile); Tawichsri, Tanisa (Bank of Thailand); Wiedemann, Verena (World Bank Group) |
| Abstract: | This paper studies formal employment dynamics using linked employer–employee data from eight countries spanning a wide income range from Kenya to Chile. First, we show that formality rates increase with development, both between and within countries, because more workers enter the formal sector, not because they spend more time in formal jobs. Second, formal labor market fluidity increases with development, as workers hold more formal jobs, spend less time in each job, and less time between jobs. Third, greater fluidity is associated with higher life-cycle wage growth, which is largely accounted for by within- rather than between-firm wage gains. |
| Keywords: | formal employment, labor market fluidity, economic development |
| JEL: | J46 J63 O15 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18733 |
| By: | Allouard, Hugo; Cecere, Grazia; De Sousa, Jose; Marie, Olivier; Picard, Ines |
| Abstract: | We study how the expansion of gig job opportunities affects local labor markets and crime in France. Food delivery platforms create flexible and low-barrier jobs that attract young and minority workers from disadvantaged areas, who have limited opportunities in the traditional labor market. Using staggered difference-in-differences, we show that platform entry substantially increases rider registrations and raises labor-market participation among male migrants. We also find sizable declines in violent offenses, petty theft, vandalism, and drug crimes, consistent with increased opportunity costs of crime and reduced unstructured time among high-risk individuals. Exploiting the legal minimum age of 18 for delivery work, an age-eligibility test shows that crime reductions are concentrated among those able to take up platform jobs. These results indicate that gig jobs can expand access to legal income for marginalized groups by reducing entry barriers, with associated declines in local crime. |
| Keywords: | Gig economy; Crime; Labor markets; Digital platforms |
| JEL: | J68 K42 L68 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21089 |
| By: | Jonathan S. Hartley; Morris M. Kleiner |
| Abstract: | Relatively little is known about occupational licensing across nations. We assemble harmonized estimates of licensing prevalence for 44 countries using nationally representative surveys, including new surveys for previously unstudied countries. Licensing ranges from roughly 14 percent of workers in Denmark to more than 40 percent in India and South Africa. Licensed workers earn 6 to 19 percent higher wages than comparable unlicensed workers across specifications. Licensing prevalence is negatively associated with GDP per capita and governance quality, and positively associated with informal employment, suggesting occupational licensing is intertwined with labor market efficiency, formalization, and long-run economic development. |
| JEL: | J31 J44 J48 J8 K23 O15 O43 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35424 |
| By: | Shoib, Zulekha; Karim Soomro, Hassnain; Lohana, Sneha |
| Abstract: | Women domestic workers represent a significant component of Pakistan’s informal labor market, yet remain largely excluded from formal labor regulation and collective representation. Despite recent passing of laws for domestic work, unionization within this sector is limited. This study investigates whether the limited unionization of do- mestic workers in Pakistan reflects individual preference or structural constraint aris- ing from legal constraints, economic vulnerability, and institutional exclusion. Using a mixed-methods research design, the study draws on primary qualitative interviews and descriptive quantitative data collected in Sindh and Punjab. The findings indicate that low levels of union participation are primarily explained by the absence of en- forceable contracts, limited legal documentation, weak institutional outreach, and high exposure to employment insecurity, rather than opposition to collective organization. While some respondents expressed conditional support for collective representation, trade unions were widely perceived as ineffective or misaligned with the immediate economic priorities of informal domestic work. We recommend that trade unions work on improving their outreach to female domestic workers. There should be a one-page contract written in Urdu, accessible to all domestic workers that should be signed before the onset of their contract. |
| Keywords: | Female Domestic Workers; Trade Unionisation; Informal Labour Markets; Structural Constraints; Collective Action; Pakistan |
| JEL: | J16 J46 J51 J83 |
| Date: | 2025–12–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129909 |
| By: | Schneider, Friedrich (University of Linz); Asllani, Alban (Royal Docks School of Business and Law, University of East London) |
| Abstract: | Illicit tobacco trade poses a major challenge to revenue integrity, public health policy and state capacity across Southeast Asia. While policy debates often link illicit tobacco markets to high excise tax rates, this paper argues that illicit trade is better understood as a structural governance problem shaped by the interaction between tax design, regulation and enforcement capacity. Focusing on six ASEAN economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — the paper develops a three-pillar framework centred on excise tax structure, regulatory oversight and enforcement systems. The analysis shows that the illicit tobacco trade does not follow a uniform regional pattern. E.g. Indonesia is characterised by domestic evasion and informal production; the Philippines by the benefits and limits of excise reform; Singapore by persistent external supply pressure despite strong enforcement; and Vietnam by brand-specific illicit demand rooted in historical policy choices. Effective control requires predictable, administratively simple tax systems, enforceable regulatory frameworks, stronger supply chain and retail controls, and intelligence-led enforcement supported by cross-border cooperation. |
| Keywords: | illicit tobacco trade, excise taxation, shadow economy, revenue integrity, tobacco control, ASEAN |
| JEL: | H26 H21 K42 O17 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18747 |
| By: | Bustos, Sebastian; Pomeranz, Dina; Suárez Serrato, Juan Carlos; Vila-Belda, Jose; Zucman, Gabriel |
| Abstract: | Profit shifting by multinational corporations is thought to reduce tax revenue around the world. This paper provides a comprehensive analysis of the introduction of standard regulations to limit profit shifting. Using administrative tax and customs data from Chile, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. Interviews with tax advisors and employment history data reveal a drastic increase in consulting services. Our results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers. |
| JEL: | H25 H26 H32 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21105 |
| By: | Mayara Felix (Yale University); Beatriz Marcoje (Universidade Federal Fluminense); Ieda Matavelli (CERGE-EI); Maria Clara Rodrigues (Yale University) |
| Abstract: | We document employment preferences of workers at the margin of informality using open-ended questions and discrete choice experiments in Brazil's largest favela complex. Stated preferences emphasize pay and tangible job benefits rather than meaning or purpose, while primary complaints center on poor management, customers, and inflexible schedules. Workers exhibit high valuations for all formal sector amenities on averageÑunemployment insurance, parental leave, and termination noticeÑas well as for learning opportunities, but lower for non-formal sector amenities such as shorter commutes. Valuations vary systematically by employment sector in ways consistent with sorting: formal workers value formal amenities most, the self-employed value them least or not at all, and the informally employed exhibit mixed valuations. These patterns are also consistent with learning and endowment effects, for which we find suggestive evidence. |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2519 |
| By: | Jiao Wang; Sambit Bhattacharyya; Stephen Lartey; Chirantan Chatterjee |
| Abstract: | What is the welfare cost of demonetisation in emerging economies? We find Kenya's 2019 demonetisation accelerated mobile money use, improved aggregate crime perception, and imposed income losses. Using a Two-Agent New Keynesian (TANK) model with cash-in-advance constrained households and working capital constrained informal firms, we establish three underlying general equilibrium mechanisms. First, precautionary cash hoarding by informal firms drain household liquidity and is contractionary. Second, cash-digital complementarity in agriculture exposes cash-only households to welfare losses. Third, crime perception of urban unconstrained households increases due to local wage collapse, whereas the same for constrained households decline due to reduced theft exposure. |
| Keywords: | demonetisation, mobile money, TANK, financial inclusion, informal sector, crime |
| JEL: | E26 E41 O11 O17 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-58 |
| By: | Patnaik, Megha |
| Abstract: | I study India’s 2017 Goods and Services Tax (GST) to examine how self-enforcing tax design generates formalization cascades through supply chains. GST created incentives for formal procurement by allowing input tax credits only for purchases from registered suppliers. Using firm-level data on 12, 024 firms, I find that firms at the mean pre-reform exposure to non-creditable taxes increased documented input purchases by 6 percent while reducing tax payments by 8 percent. Effects double over five years, consistent with formalization propagating sequentially upstream—a dynamic pattern that provides the first empirical evidence on the dynamics of VAT-driven formalization cascades. At the aggregate level, large firms’ share of national GST collections fell from 46 to 30 percent, implying smaller enterprises entering the formal tax net. The interquartile range of effective tax rates collapsed by 72 percent, reflecting the replacement of heterogeneous cascading taxes with uniform credits. |
| Keywords: | Tax compliance |
| JEL: | H25 H32 O17 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21163 |
| By: | Bilicka, Katarzyna; Traini, Simone |
| Abstract: | We examine whether the public revelation of sensitive tax information prompts firms to adopt reputation repair policies targeting shareholders. Between 2013 and 2021, the International Consortium of Investigative Journalists (ICIJ) released leaked information on over 800, 000 offshore entities incorporated in tax havens, publicly revealing their use by multinational firms to avoid taxes. Leveraging this setting, we investigate whether firms implicated in the leaks improve their governance, increase investor remuneration, and reorganize their activities to restore shareholder trust relative to unaffected firms. We find that, after the leaks, firms appoint more directors, especially in operations, audit, and finance and accounting, pay higher dividends, and reduce their presence in tax havens, without increasing effective tax rates. Additional analyses suggest that concerns about managerial diversion and public scrutiny may drive these responses. Overall, data leaks appear to change the cost-benefit trade-off of tax strategies in ways that are, on net, favorable to shareholders. |
| Keywords: | Offshore Subsidiaries; Tax havens; Data Leaks; Corporate governance; Dividend payouts; Reputation Repair |
| JEL: | G30 H25 L14 M41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21107 |
| By: | Luiu, Carlo; Wandera, Amos; Bukachi, Vera; Day, Rosie |
| Abstract: | Despite significant discussions on transport inequalities in African cities, older people's mobility needs remain under-researched. To gain a deeper understanding of such issues, this study focuses on older people living in Kenyan informal settlements and uses the capability approach to investigate their options for mobility, activities and locations, barriers, coping strategies and unfulfilled mobility needs. The study employs a qualitative approach comprising four focus groups with 24 participants and a follow-on community engagement workshop with people aged above 50 years old living in the informal settlement of Kibera in Nairobi. The results indicate that older people face significant challenges in their everyday mobility. Living with poor health conditions, level of poverty, lack and poor quality of walking infrastructure, personal safety and ageist behaviour are the main factors shaping and affecting their mobility. The capability approach offers a framework to understand older people’s mobility practices and implications for wellbeing. It enables an analysis of how mobility is shaped by their needs, constraints and decision-making processes, and how this translates into participation in life. It also offers an exploration of how mobility enables and supports a wider capability set, outlining its multidimensional social impacts. |
| Date: | 2026–06–15 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:fkh7z_v1 |