nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2024‒05‒27
six papers chosen by
Catalina Granda Carvajal, Banco de la República

  1. What traders know: the (mis)perceptions of formal and informal cross-border traders By Paolo Falco; Eleanor Wiseman
  2. New Gig Work or Changes in Reporting? Understanding Self-Employment Trends in Tax Data By Andrew Garin; Emilie Jackson; Dmitri K. Koustas
  3. The Impact of Lump-Sum Retirement Withdrawals on Labor Supply: Evidence from Peru By Carla Moreno; Sita Slavov
  4. Employment Formalization in Indonesia: Role of Parents’ Employment Mobility Toward Children’s Employment Mobility By Ruslan, Kadir; Sukma, Weni Lidya
  5. Friendship-kinship network and access to formal-informal credit in India By Pallabi Chakraborty
  6. Miners’ endurance in informal gold mining: the extreme case of La Rinconada, Peru By Robles Mengoa, Eugenia; Sánchez, Ana Luisa

  1. By: Paolo Falco; Eleanor Wiseman
    Abstract: Cross-border traders face a choice between official and unofficial border crossings. The latter allow them to evade taxes, but expose them to other risks, such as bribes, fines, and arrest. We investigate the perceptions of cross-border traders about the risks of trading officially vs unofficially at the border between Kenya and Uganda. We find that traders overestimate the risks of trading officially relative to the same risks when trading unofficially. In reality, the measured risks of trading through the official border are lower.
    Keywords: Trade, Formality, Informality, Subjective beliefs, Corruption, Tax evasion, Risk attitudes
    Date: 2024
  2. By: Andrew Garin; Emilie Jackson; Dmitri K. Koustas
    Abstract: Rising self-employment rates in U.S. tax data that are absent in survey data have led to speculation that tax records capture a rise in new “gig” work that surveys miss. Drawing on the universe of IRS tax returns, we show that trends in firm-reported payments to “gig” and other contract workers do not explain the rise in self-employment reported to the IRS; rather, that increase is driven by self-reported earnings of individuals in the EITC phase-in range. We isolate pure reporting responses from real labor supply responses by examining births of workers’ first children around an end-of-year cutoff for credit eligibility that creates exogenous variation in tax rates at the end of the tax year after labor supply decisions are already sunk. We find that ex-posing workers with sunk labor supply to negative marginal tax rates results in large increases in their propensity to self-report self-employment—only a small minority of which leads to bunching at kink-points. Consistent with pure strategic reporting behavior, we find no impact on reporting among taxpayers with no incentive to report additional income and no effects on firm-reported payments of any kind. Moreover, we find these reporting responses have grown over time as knowledge of tax incentives has become widespread. Quantification exercises suggest that changes in taxpayer reporting behavior are a major driver of discrepancies between self-employment trends in self-reported and third-party reported data. Our findings suggest caution is warranted before deferring to self-reported tax data over other data sources when measuring labor market trends.
    JEL: H26 J21 J41 J46 J82
    Date: 2024–04
  3. By: Carla Moreno; Sita Slavov
    Abstract: We examine the labor supply impact of a 2016 policy that allows retirement-eligible individuals covered by Peru’s private pension system to receive retirement benefits as a lump sum rather than as an annuity. We present a theoretical model predicting that, for liquidity constrained workers, the lump sum option makes formal employment (requiring pension participation) more attractive relative to informal employment (not requiring pension participation); it also encourages early retirement. Using household panel data, we estimate the impact of the 2016 policy on the labor supply of workers covered by the private pension system compared to workers covered by the alternative pay-as-you-go defined benefit pension (which was unaffected by the policy). The policy is associated with an increase in the probability of being retired at ages 50 (early retirement age for women), 55 (early retirement age for men), and 65 (full retirement age for all workers). We also find increases in formal sector employment among women in their late 40s and men in their early 50s, consistent with increased efforts to qualify for early retirement (which requires recent pension contributions). The policy’s effects are concentrated among workers with less education, who are more likely to be liquidity constrained.
    JEL: G51 H55 J26
    Date: 2024–04
  4. By: Ruslan, Kadir; Sukma, Weni Lidya
    Abstract: This study aims to analyze the impact of parents’ employment status mobility on the children’s employment status mobility. In doing so, we applied a two-stage multinomial logistic regression model. In this research, employment status mobility refers to a mobility status from informal to formal jobs and vice versa. Using data from the Indonesian Family Life Survey (IFLS) for the period 2007 and 2014, the profile of the Indonesian workforce was dominated by stayers. The estimation results of multinomial logistic regression indicate that only fathers’ employment status mobility has a significant effect on the children’s employment status mobility, where fathers who are stayers and experiencing upward mobility will provide greater opportunities for their children to be stayers and fewer opportunities to experience downward mobility. Moreover, the employment status mobility of mothers does not have a significant impact on their children’s employment mobility. Our study points out the pivotal role of fathers in influencing employment formalization in Indonesia. Our findings could be valuable inputs for policy-making regarding employment formalization in Indonesia.
    Keywords: formal, informal, Recommendation 204, parents’employment, job mobility, upward mobility, downward mobility
    JEL: J2 J21 J24 J62
    Date: 2023–04–02
  5. By: Pallabi Chakraborty (Tata Institute of Social Science)
    Abstract: I examine the association between the friendship-relative (FR) network and borrowings from market lenders in the context of Indian households. I explore various channels that may affect the observed associations, if any.
  6. By: Robles Mengoa, Eugenia; Sánchez, Ana Luisa
    Abstract: This paper delves into miners' endurance in La Rinconada, Peru, an extreme case of informal ASGM, to understand how they persist in adverse conditions, drawing on the concept of endurance as the ability to persist in difficult circumstances, constantly adapting to unpredictable contexts and envisaging a better future, as observed through social navigation theory.
    Keywords: Peru, artisanal mining, asgm, mining, gold mining
    Date: 2024–05

This nep-iue issue is ©2024 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.