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on Informal and Underground Economics |
| By: | Bertranou, Fabio; Casanova, Luis; Saravia, Marianela |
| Abstract: | In a brief period of time after the 2001-2002 crisis, there was a dramatic fall in informal salaried employment in Argentina. Informal employment—also called “non-registered employment”—refers to employment for which no social security contribution is made. This indicator dropped by fifteen percentage points, from 49% to 34% from 2003 to 2012. This paper analyzes the recent evolution of informal employment and the main policies designed to reduce its scope and to encourage the creation of quality employment. It has been observed that the decline in informal employment, measured as non-registered salaried employment, is primarily due to net creation of formal employment and, to a lesser extent, to net destruction of non-registered employment. The rate of informal employment declined in all sectors of the economy and in establishments of all sizes. Extensive mobility between non-registered salaried employment and inactivity (mainly among low-skilled women workers) has been observed as well and, albeit to a lesser extent, between non-registered salaried employment and formal employment. Since most informal workers are unskilled and perform their jobs in work units that are difficult for public policies to identify, a comprehensive policy approach is necessary, one that considers economic, social and employment issues. |
| Keywords: | Informal employment, informal economy, labor market, labor policies, Argentina |
| JEL: | J21 J80 O17 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47467&r=iue |
| By: | Pavla Nikolovova; Filip Pertold; Mario Vozar |
| Abstract: | In this paper we investigate the role of the business cycle for the transitions of Czech and Slovak workers to informal economy using Czech and Slovak Labor Force Survey data. We use two approximations for the participation in informal economy, self-employment and employment in small workplace (10 and fewer workers or 5 and fewer workers). Both statuses are potentially associated with the participation in an informal economy. Using the similar methodology as presented in Bosh and Maloney (2007), we show that recent recession caused substantial increase in transitions of workers from formal into both self-employment and employment. As compare to pre-recession time the flow into self- increased more than 4 times. The increase in transitions to small workplaces is less pronounced. |
| Keywords: | informal economy, business cycle, labor force |
| JEL: | J21 H26 |
| Date: | 2013–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:cel:dpaper:8&r=iue |
| By: | Alexander Karaivanov (Simon Fraser University); Anke Kessler (Simon Fraser University) |
| Abstract: | We develop a model to study the choice between formal and informal sources of credit in a setting with strategic default due to limited enforcement. Informal loans (e.g., from friends or relatives) are enforced by the threat of both parties losing the friendship relation. In contrast, formal loans (e.g., from banks) can only be enforced via collateral requirement. We show that the optimal informal loan contract features zero interest rate and zero physical collateral requirement. In contrast, formal loans always charge positive interest and require collateral. Borrowers are more likely to choose informal loans for small investment needs, and for loans with no or low default risk. Riskier loans, up to a limit, are optimally taken from formal sources since physical collateral, unlike social collateral is divisible, and defaulting with a bank is thus less costly than defaulting with a friend. Very risky loans, in contrast, can only be financed by informal sources due to insufficient collateral. Because default with social capital is relatively costly, however, personal loans also imply a limited growth potential. Empirical results from a cross section of 2880 Thai households are consistent with the predicted pattern of formal versus informal credit. |
| Keywords: | Informal credit, family loans, social capital, peer-to-peer lending, microfinance. |
| JEL: | G21 O12 O16 O17 D19 D64 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp13-03&r=iue |
| By: | Emilio Espino; Martin Gonzalez Rozada |
| Abstract: | This paper explores the qualitative and quantitative implications of optimal tax- ation in a developing economy when economic growth is endogenously determined. We di¤erentiate this class of economies from a developed economy in two aspects: 1. the informal sector is quantitatively signi…cant and, 2. tax-collecting technologies are more rudimentary. We characterize competitive equilibrium allocations and Ramsey allocations in the context of a small open economy in which the interest rate is endoge- nously determined, some workers can be hired in the informal market and imperfect tax-collecting technology can be heterogeneous across types of taxes. We calibrate the parameters of our model to the Chilean economy. Overall, our results suggest that capital should still be taxed but considerably less than actual taxes (that is, 10.78% versus 18.5%). Labor should be subsidized (to stimulate accumulation of human capital) while consumption taxes should be increased by 50% approximately (from 19% to 28%). As expected, the better collecting technologies, the higher the corresponding taxes. In this context, the resulting growth rate increases only slightly along the balanced growth path. |
| Keywords: | Optimal fiscal policy, economic growth, inefficient tax collecting technology |
| JEL: | E61 E62 H21 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpecon:2013-06&r=iue |
| By: | Stefan Haigner; Friedrich Schneider; Florian Wakolbinger |
| Abstract: | International policy standards in the fight against money laundering and terrorist financing are set forth by the Financial Action Task Force (FATF) recommendations on Anti-money laundering (AML)/Combating the financing of terrorism (CFT) policies. While those standards are very high and require, for example, financial businesses to strictly pursue the "know your customer principle", countries compliance with the standards is low. In putting efforts in increasing compliance and harmonizing enforcement, however, the costs (both in terms of resources as well as reduced privacy rights) have to be taken into account. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwepb:diwepb18&r=iue |
| By: | Stefan Haigner; Friedrich Schneider; Florian Wakolbinger |
| Abstract: | Yearly revenues from transnational criminal activity account for USD 1 to 1.6 trillion, and a wide variety of methods is employed to transfer those revenues across borders and launder it. The specific type of crime largely determines the choice of methods. Terrorists, for example, use both "legal" as well as illegal activity, in particular drug dealing, to raise funds, and largely employ the formal financial sector as well as physical cross-border transfers to move funds across borders. Money attributable to terrorism, however, accounts only for a tiny share of international proceedings from illicit activity. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwepb:diwepb17&r=iue |
| By: | Guglielmo Barone (Bank of Italy); Gaia Narciso (Trinity College Dublin) |
| Abstract: | Organized crime is widely regarded as damaging to the economy, to say nothing of people’s lives. Yet little is known about the mechanism at work. This paper helps fill the gap by analyzing the impact of organized crime on the allocation of public subsidies to businesses. We assemble an innovative data set on Italian mafia crimes at municipal level and test whether organized crime diverts public funding. We exploit exogenous variations at the level of municipalities to instrument current mafia-style activity by using exogenous shifters of land productivity in the 19th century. Our results show that the presence of organized crime positively affects both the extensive margin (probability of funding) and the intensive margin (amount of public funding to enterprises). The impact is economically relevant and equal to at least one standard deviation of the dependent variable. Organized crime is also found to cause episodes of corruption in the public administration. A series of robustness checks confirm the findings. Our results suggest that geographically targeted aid policies should be careful to take local crime conditions into account. |
| Keywords: | organized crime, public transfers, corruption |
| JEL: | H4 K4 O17 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_916_13&r=iue |
| By: | Loretti I. Dobrescu (University of New South Wales) |
| Abstract: | This paper develops a dynamic structural life-cycle model to study how heterogeneous health and medical spending shocks a¤ect the savings behavior of the elderly. Individuals are allowed to respond to health shocks in two ways: they can directly pay for their health care expenses (self-insure) or they can rely on health insurance contracts. There are two possible insurance options, one through formal contracts and another through informal care provided by family. Formal contracts may be a¤ected by asymmetric information problems, whereas informal insurance depends on social ties (cohesion) and on bequeathable wealth. I estimate the model on SHARE data using simulated method of moments for four levels of wealth in a sample of single retired Europeans. Counterfactual experiments show that health, medical spending and health insurance are indeed the main drivers of the slow wealth decumulation in old age. I also fi?nd that social cohesion rises with age, declines with wealth and is higher in Mediterranean countries than in Central European and Scandinavian countries. Finally, high social cohesion appears typically associated with increased life expectancy. |
| Keywords: | savings, health, health insurance, social cohesion, life expectancy |
| JEL: | D1 D31 E27 H31 H51 I1 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2012-51&r=iue |
| By: | PriceWaterhouseCoopers |
| Abstract: | Article 263(1) aims at ensuring that information on intra-Community supplies of goods, including deemed supplies, and services is collected and exchanged between Member States more quickly, so as to enable quicker detection of fraud, in particular VAT carousel (missing trader) fraud. The report was drawn up for the European Commission by PWC in 2011 and focuses on the consequences for business arising from a reduced time frame for submitting recapitulative statements and the possibilities offered to Member States to derogate from the normal rule.. |
| Keywords: | European Union, taxation, VAT |
| JEL: | H25 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxstu:0040&r=iue |