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on Informal and Underground Economics |
| By: | Magnus Eldrup (Department of Economics, University of Copenhagen) |
| Abstract: | Exemptions are a key feature of income tax systems in developing countries, yet standard optimal tax models cannot explain them. By assuming full compliance, these models ignore horizontal inequality between formal and informal workers, understating the social cost of taxing the former. Extending the optimal tax framework, I incorporate informality and horizontal inequality aversion. I conduct a survey experiment in Kenya, finding that respondents place substantially higher welfare weight on formal taxpayers than otherwise identical informal workers. Combining these empirical preferences with administrative tax data yields prescriptions of high exemption thresholds matching observed policy, a result alternative explanations cannot rationalize. |
| JEL: | H21 H26 D63 O17 C93 |
| Date: | 2026–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2619 |
| By: | José Alves; Alexandre Ernesto da Costa António |
| Abstract: | How does informality shape fiscal adjustment when governments face debt stress? We study 122 non-advanced economies from 1990 to 2020 by embedding shadow-economy exposure in fiscal reaction functions, debt-dynamics decompositions, and state-dependent impulse responses. The central design uses predetermined pre-2008 informality and the common timing of the Global Financial Crisis. Countries with higher pre-crisis informal-ity run a larger post-2008 primary balance, a differential of roughly 0.6 to 1.5 percentage points of GDP, against a sample-mean deficit near 0.8 percent after absorbing country effects, common shocks, and region-year shocks; event-study estimates cannot reject parallel pre-trends before the shock (a test with limited power), and the post-2008 break survives netting out a linear pre-trend. The result survives country trends, outcome win-sonorization, alternative event windows, country-level randomization inference, and full leave-one-country-out diagnostics. Mechanism tests show that the primary balance is the main adjustment margin, with weaker evidence of revenue effort and little support for a clean expenditure, growth, snowball, or debt-stock channel. A fiscal-rule adoption event study provides a non-GFC scope check: pre-trends are clean, but the informality differ-ential is short-lived rather than persistent. We do not find a stable universal pooled inter-action coefficient; fixed-effects, IV, and GMM estimates of the average debt-response gradient are often imprecise. The evidence supports a narrower claim: informality be-comes fiscally consequential when stress tightens governments’ room for manoeuvre, forcing sharper primary-balance adjustment rather than indicating stronger underlying fiscal capacity. |
| Keywords: | Shadow economy, fiscal sustainability, fiscal reaction function, time-varying parameters, debt dynamics, fiscal space, developing countries. |
| JEL: | E26 E62 H63 O17 C23 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04262026 |
| By: | Rixu Lan (Central University of Finance and Economics); Haowen Ma (Central University of Finance and Economics); Lingyu Kong (Adelaide University) |
| Abstract: | How did firms govern employee misconduct in the absence of strong courts, standardized accounting, and effective external enforcement? Existing accounts of corporate governance often treat formal law and bureaucratic control as preconditions for modern organizations. Drawing on extensive archival evidence from the Shanghai Commercial & Savings Bank between 1915 and 1949, this article challenges that assumption by examining how a large, expanding bank constructed an effective internal system to prevent employee fraud under conditions of legal fragility and political instability. Conceptually, the study reframes fraud control as a historically contingent governance architecture composed of three interlocking elements: dense internal monitoring, incentive-based career structures, and a distinctive guarantor system that transferred risk to third parties while mobilizing social reputation, moral obligation, and private information. Rather than operating as an informal residue of tradition, the guarantor system functioned as a contractual and organizational device that embedded extra-organizational social relations into the bank’s formal governance structure. Based on regulations, personnel files, fraud case records, and contemporary publications, the article shows that these mechanisms were mutually reinforcing and capable of sustaining relatively low fraud incidence and high employee retention over time, though their effectiveness depended on macroeconomic stability. By historicizing corporate governance outside Western institutional settings, the study demonstrates that modern control did not require the elimination of informality but its strategic institutionalization. More broadly, it contributes to business history and the study of capitalism by revealing alternative pathways through which firms historically produced trust, discipline, and accountability in the absence of strong states. |
| Keywords: | employee fraud prevention;Chinese modern banks;guarantor system;internal labor markets |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:adl:wpaper:2026-06 |
| By: | Nxumalo, Mpumelelo (World Bank); Raju, Dhushyanth (World Bank) |
| Abstract: | Formal labor market integration remains central to Türkiye’s Syrian refugee response as policy shifts toward longer-term self-reliance and social cohesion. This paper uses a 2026 survey of micro, small, and medium-sized enterprises (MSMEs) across all 81 provinces in the country, with a dedicated Syrian refugee employment module in 24 provinces covering about 95 percent of Syrians under temporary protection. Among MSMEs in these provinces, 4.5 percent have ever hired Syrian refugee workers and 2.6 percent currently employ them, representing roughly 100, 000 and 58, 000 firms. Employer-reported experience is generally favorable, yet formal hiring remains constrained by limited knowledge of formal employment requirements, procedural complexity, low support program awareness and use, and reliance on personal networks and direct applications. Current and former employers are far more likely than never-employers to report that additional support would make hiring easier. The findings point to making work authorization pathways clearer and easier to use, reducing administrative frictions, strengthening matching and support services, and differentiating assistance by firms’ prior hiring experience. |
| Keywords: | Syrian refugees, MSMEs, formal employment, work permits, employer-side constraints, labor market integration, Türkiye |
| JEL: | J15 J61 J68 O15 L26 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18916 |
| By: | Nasir Iqbal (Pakistan Institute of Development Economics, Islamabad); Baber Majid Bhatti (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | A fully digital platform to simplify business registration in Pakistan, empowering MSMEs with mobile-first access, FBR and SECP integration, and secure online services. |
| Keywords: | business registration Pakistan, digital registration MSMEs, Pakistan startup registration, e-registration portal Pakistan, PITB limitations, FBR SECP integration, SME formalization Pakistan, online business setup, mobile-first business platform, digital business licensing |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pid:pviewp:2025:47 |
| By: | YEMTE TCHEYO, Yves; MBONDO, Georges Dieudonné |
| Abstract: | This article aims to demonstrate that taxation, as a modality of formal institutions, exerts asymmetric effects on the development of opportunity and necessity entrepreneurship in sub-Saharan African economies. To this end, it uses an unbalanced panel covering 37 to 44 African economies over the period 2005–2018, based on ILOSTAT–World Bank data, to operationalize the cyclical perspective of Fairlie and Fossen (2018), necessary for constructing two binary indicators of entrepreneurship (OPP and NEC) on African data. A probit model with random effects on binary panel data is then estimated and validated using Wooldridge's (2002) battery of tests. The results, robust to the various tests conducted, show that a one percentage point increase in the total tax burden decreases the probability of opportunity entrepreneurship by 1.2 percentage points (at the 1% significance level) and that of necessity entrepreneurship by 0.8 percentage points (at the 5% significance level). This results in a negative skew of a factor of 1.5 against opportunity entrepreneurship. This magnitude skew, which, to our knowledge, demonstrates the first empirical validation in an African context, shows that the opportunity entrepreneur, directly exposed to the transaction costs of the formal sector, fully bears the impact of the tax burden, while the necessity entrepreneur, partially protected by their informal sector affiliation, experiences only a fraction of it. |
| Keywords: | Taxation; Opportunity entrepreneurship; Necessity entrepreneurship; Formal institutions; Sub-Saharan Africa; Magnitude asymmetry; Random effects probit; Binary panel |
| JEL: | H25 L26 O17 O55 |
| Date: | 2026–06–23 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:131116 |
| By: | OCDE |
| Abstract: | Ce document examine les difficultés auxquelles font face les autorités de la concurrence en Amérique latine et dans les Caraïbes (ALC) dans le cadre de l’application du droit de la concurrence sur les marchés caractérisés par une économie informelle. Les marchés informels représentent une part conséquente de l’activité économique dans la région et peuvent influer sur la dynamique concurrentielle, tant lorsque des entreprises informelles livrent concurrence à des entreprises formelles que lorsque le jeu de la concurrence s’inscrit dans le cadre de marchés informels. Ce document est axé sur des questions d’application du droit de la concurrence liées à l’économie informelle, notamment la définition des marchés en cause, les enquêtes menées sur des entreprises informelles et le calcul des amendes. Bien que l’économie informelle puisse créer d’importantes difficultés liées à l’établissement de la preuve et procédurales, ce document met en évidence des possibilités pour les autorités de la concurrence d’atténuer ces difficultés, notamment en recourant à des ensembles de données officiels, à des études marché et à la coopération institutionnelle avec des organisations luttant contre l’activité informelle. Nous faisons valoir dans ce document que les autorités de la concurrence de la région ALC devraient prendre en compte les marchés informels dans le cadre de l’application du droit de la concurrence, et qu’elles peuvent intervenir de manière proportionnée, pragmatique et ciblée pour remédier aux atteintes à la concurrence liées aux marchés informels, tout en favorisant un meilleur fonctionnement des marchés et la transition vers l’économie formelle. |
| Keywords: | Amérique latine et Caraïbes (ALC), application du droit de la concurrence, marchés informels, économie informelle |
| JEL: | K21 K42 L40 L41 |
| Date: | 2026–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaac:337-fr |