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on Informal and Underground Economics |
| By: | Leonardo Bonilla-Mejía; Luz A. Florez; Didier Hermida; Francisco Lasso-Valderrama; Leonardo Fabio Morales; José Pulido |
| Abstract: | We study the impact of payroll subsidies targeting SMEs on labor market formalization in developing economies, where informal labor markets are prevalent. Our evidence is based on a payroll subsidy program in Colombia (PAEF-stage 2) targeting firms under 50 employees that subsidized up to 50% of the payroll. We exploit detailed administrative records, as well as the discontinuity in the eligibility threshold and the timing of the program implementation to estimate the causal effect of the program. Our findings indicate that the subsidy had a positive and persistent effect on formal employment. The impact is larger for industries receiving more subsidies but does not vary across employees’ gender. Cost-benefit analysis shows that the program was financially sustainable, with internal rates of return ranging from 58% to 169%. *****RESUMEN: En este trabajo se analiza el impacto de los subsidios a la nómina dirigidos a pequeñas y medianas empresas sobre la formalización laboral en una economía en desarrollo, donde los mercados laborales informales son predominantes. Nuestra evidencia se basa en la segunda fase del Programa de Apoyo al Empleo Formal (PAEF) en Colombia, que otorgó subsidios de hasta el 50% de la nómina a empresas con menos de 50 empleados. Se usan registros administrativos detallados, así como la discontinuidad en el umbral de elegibilidad y el momento de implementación del programa, para estimar su efecto causal. Los resultados indican que el subsidio tuvo un efecto positivo y persistente sobre el empleo formal. El impacto fue mayor en los sectores que recibieron mayores montos de subsidio, pero no presentó variaciones según el género de los trabajadores. El análisis costo-beneficio muestra que el programa fue financieramente sostenible, con tasas internas de retorno que oscilan entre el 58% y el 169%. |
| Keywords: | Payroll subsidies, small and medium enterprises, informality, developing economies, Subsidios a la nómina, pequeñas y medianas empresas, informalidad, economías en desarrollo |
| JEL: | J68 J38 J23 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1338 |
| By: | Ana Cebreiro Gomez; Ms. Christina Kolerus; Guilherme Dal Pizzol; Pablo Moreira; Miguel Pecho |
| Abstract: | Brazil’s landmark VAT reform, approved in December 2023, will profoundly alter the way consumption taxes are raised across three levels of government. The dual VAT will replace five overlapping taxes, address major inefficiencies of the current system, and simplify and harmonize a widely scattered tax landscape. While the objective of revenue neutrality is anchored in the reform law, deep structural changes will generate uncertainty about the expected revenue collection. This paper estimates consumption tax revenues under the new VAT based on an adjusted IMF's RA-GAP framework taking into account Brazil’s specificities and documents sectoral shifts in tax burdens. We simulate a wide set of scenarios, modifying key assumptions including on the compliance gap and informality, while being guided by legislated decisions on rates and exemptions. Our findings indicate that minimizing the compliance gap will be the most effective way towards ensuring revenue neutrality. To address revenue risks and unleash the reform’s benefits, full integration of operations and effective management of the input tax credit mechanism are critical. |
| Keywords: | Tax policy; VAT; RA-GAP model; tax compliance; informality |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/266 |
| By: | Data Avicenna (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada); Gumilang Aryo Sahadewo (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada) |
| Abstract: | This study examines the differences in returns to schooling and on-the-job training between informal and formal workers in Indonesia using two-wave panel data from the Indonesian Family Life Survey (IFLS). Employing fixed-effects regression on an extended Mincer equation to control for unobserved individual characteristics, the analysis reveals no statistically significant differences in returns to education and training between worker types—contrary to findings from other countries. However, informal workers earn 19.6% less than formal workers after controlling for non-random selection of being informally employed, indicating that the earnings gap stems from worker characteristics rather than different returns to human capital. The study suggests that informal workers gain valuable initial experience complementing their schooling and sacrifice more working hours for training to achieve similar returns as formal workers. These findings suggest targeted interventions enhancing human capital among informal workers could support upward mobility and potential transition to formal employment within Indonesia's dual economy structure. |
| Keywords: | Informal labor market, returns to schooling, returns to on-the-job training, Indonesian Family Life Survey |
| JEL: | J24 J31 J46 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:gme:wpaper:202507006 |
| By: | S. Benson Simwanza (Department of Economics, Delhi School of Economics , University of Delhi); Dibyendu Maiti (Department of Economics, Delhi School of Economics , University of Delhi) |
| Abstract: | The paper investigates whether the thriving application of ICTs, e-government, reduces the level of corruption within nations in Sub-Saharan Africa. Using a simple Ramsey model, it models the tax evasion in the presence of ICTs and demonstrates how the level of digital-institutional quality that improves digitalisation strengthens institutions, reduces corruption, and thereby enhances growth. Not digitalisation, but digitalisation with institutional quality matters most. Furthermore, this study empirically explores the nexus between perceived corruption and e-government using a panel data set for 44 Sub-Saharan African countries during the period 2003-2022 using various methods of estimation: OLS, IV, FE, and GMM methods. The regional e-government development index (EGDI) average is below the global average. The findings indicate that e-government does not lessen the corruption perception index across all indicators. E-government is robust in reducing the perceived corruption index when full interactions between government effectiveness and e-government, as well as between government effectiveness and economic prosperity, are introduced into the models. |
| Keywords: | Corruption, E-government, IV–2SLS, Dynamic Panel GMM JEL codes: O33, O44, O57 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cde:cdewps:357 |
| By: | Kemayou, Yanick (Paderborn University) |
| Abstract: | Sub-Saharan Africa faces a structural youth employment crisis: 10–12 million young people enter the workforce annually while only 3 million formal jobs are created, leaving 77–85% in informal employment. Conventional responses, such as expanding formal Technical and Vocational Education and Training (TVET) or adopting Northern skills frameworks, have produced disappointing results. This paper introduces highdigenous pedagogy, an approach that synthesizes high-technology capabilities with indigenous knowledge systems through aesthetic engagement. Drawing on mixed-methods analysis of 504 learner portfolio entries and task reflections from 122 participants at Kabakoo Academies in Bamako, Mali (2023–2025), we examine how aesthetic scaffolding, i.e. using learners’ existing aesthetic sensibilities as foundations for capability development, operates in practice. Quantitative lexical analysis reveals that aesthetic discourse functions across multiple registers: design vocabulary dominates task artifacts, while portfolio entries emphasize cultural grounding and self-work. Cluster analysis identifies six discourse families, with one embodying the cultural-technological synthesis central to highdigenous pedagogy. Qualitative analysis reveals three mechanisms through which aesthetic scaffolding operates: epistemological legitimation, cultural-technological synthesis, and dignified aspiration formation. These findings extend ethnocomputing scholarship by demonstrating how aesthetic engagement enables synthesis between indigenous knowledge systems and digital capabilities, and provide empirical support for recent reconceptualizations of culturally responsive pedagogy in African contexts as fundamentally concerned with decolonization through heritage restoration. We argue that approaches treating aesthetic sensibility as epistemological foundation, rather than soft skill or enrichment, may offer more promising pathways for youth capability development than conventional competency frameworks. |
| Date: | 2025–12–28 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:k58eh_v1 |
| By: | Brown, Caitlin (Georgetown University); Tommasi, Denni (University of Bologna) |
| Abstract: | We study quality upgrading in informal markets through two experiments with street-food vendors and consumers in India. First, we define quality in terms of food safety and develop a context-specific measurement framework. Second, we show that consumers are willing to pay substantial premiums for cleanliness. Third, we implement a vendor-level intervention that lowers upgrading costs and enhances the ability to signal quality through sanitation-related equipment. The intervention improves food-safety practices and profits, but effects are modest and fade over time. Fixed pricing norms and local environmental constraints appear central, consistent with a moral hazard model where cleanliness is not profitable. |
| Keywords: | hygiene practices, consumer preferences, randomized experiment, food safety, informal markets, street food, quality upgrading, moral hazard, subsidy effectiveness, signaling, developing countries |
| JEL: | D82 I18 L15 L31 O12 O33 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18328 |