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on Informal and Underground Economics |
| By: | De Giorgi,Giacomo; Ploenzke,Matthew; Rahman,Aminur |
| Abstract: | Firm informality is pervasive throughout the developing world, Bangladesh being no exception. The informal status of many firms substantially reduces the tax basis and therefore impacts the provision of public goods. The literature on encouraging formalization has predominantly focused on reducing the direct costs of formalization and has found negligible impacts of such policies. This paper focuses on a stick intervention, which to the best of the knowledge of the authors is the first one in a developing country setting that deals with the most direct and dominant form of informality, i.e. registration with the tax authority with a direct link to the country's potential revenue base and thus public goods provision. The paper implements an experiment in which firms are visited by tax representatives who deliver an official letter from the Bangladesh National Tax Authority stating that the firm is not registered and the consequential punishment if the firm fails to register. The paper finds that the intervention increases the rate of registration among treated firms, while firms located in the same market but not treated do not seem to respond significantly. The paper also finds that only larger revenue firms at baseline respond to the threat and register. These findings have at least two important policy implications: i. the enforcement angle, which could be an important tool to encourage formalization; and ii. targeting of government resources for formalization to the high-end informal firms. The effects are generally small in levels and this leaves open the question of why many firms still do not register. |
| Keywords: | E-Business,Economic Theory&Research,Debt Markets,Markets and Market Access,Taxation&Subsidies |
| Date: | 2015–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7318&r=iue |
| By: | Antonio Báez-Morales (Faculty of Economics, University of Barcelona) |
| Abstract: | The economic role of micro firms is still the subject of much discussion and debate. While these firms can be seen as potential growth drivers, as they are usually related to entrepreneurship, a relatively high share of micro firms can also be a sign of an underdeveloped productive system, which applies especially to developing countries, where micro firms represent the majority of business activity. Unlike other studies, this research separates formal and informal micro firms in order to test whether there are efficiency differences between them, and to explain these differences. One of the novelties of the study is the use of the Oaxaca-Blinder decomposition method, which enables an analysis of the differences between both groups of firms after controlling for their different allocation of factors. Micro firms in Mexico are taken as a case study, with the Encuesta Nacional de Micronegocios (ENAMIN, or the National Micro Firm Survey), for 2008, 2010 and 2011, used to carry out the analysis. The emprical evidence suggests that output differences can be explained by endowment characteristics, while efficiency differences are explained by endowment returns. The main variables to explain the gap between the groups are the owner’s level of education, the firm’s age, the owner’s motivations, and financing. |
| Keywords: | informality, micro firms, efficiency, productivity, decomposition method. JEL classification: D00, D22, D24 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201516&r=iue |
| By: | Sebastian Galiani; Marcela Meléndez; Camila Navajas |
| Abstract: | This paper analyzes the impact of the elimination of the initial fixed costs of registration on the decision of informal firms to operate formally in Bogotá, Colombia. The Chamber of Commerce of Bogotá (CCB) conducts workshops for prospective formal-sector entrants and arranges personalized meetings for them with CCB agents. The CCB’s decision to significantly reduce the transaction costs of registration and the entry into force of Act No. 1429 of 2010, which eliminated the costs of the initial procedure for registering as a formal enterprise and provided exemptions from relevant taxes during the first years after formalization, provided us with an ideal experiment for studying how the elimination of the initial fixed costs of formalization would influence firms’ decision to operate formally or not. We obtained two important results. First, while a workshop treatment had no effect on firms’ formalization decisions, meetings at the firm with CCB agents raised the likelihood that a business would begin to operate formally by 5.5 percentage points for all the firms that were invited, at random, to participate in this arm of the intervention and by 32 percentage points for the firms that accepted the invitation. Second, the effect on the treatment firms did not persist over time. After a year of formal operation, it disappeared. These results indicate that substantial reductions in the fixed costs of operating formally are not effective in formalization choices, since such reductions had no lasting effect on formalization decisions. |
| JEL: | J21 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21292&r=iue |
| By: | Bezu, Sosina (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Holden, Stein (Centre for Land Tenure Studies, Norwegian University of Life Sciences) |
| Abstract: | Street vending of goods and services is a common phenomenon in urban areas of Africa. Although such street based self-employment activities often lack legal recognition and are sometimes criminalized, significant share of the youth labor force in urban areas earn their livelihood from such activities. This study examines whether street based self-employment is a viable livelihood with a potential for transition or a poverty trap for youth migrants. The study is based on a survey of 445 youth who are engaged in shoe shining and coffee vending activities in two urban areas in Ethiopia. We found that street based self-employment is indeed dominated by migrant youth. In this sample, 96% of those engaged in the street based self-employment are youth and 98% are migrants from rural areas or smaller towns. We found that the average monthly earning of these self-employed youth is better than the minimum wage in public sector and much larger than the official poverty line. We found that most of the youth consider this as transitory employment and accumulate skill and capital with a view to establishing their own enterprise or joining skilled employment. While young women are in general found to be less likely than young men to seek exit out of street based self-employment, education increases the likelihood that young women aspire for a change in their employment situation. Youth with better-off parents back home and those with larger network in their new residence are more likely to change their current occupation. |
| Keywords: | Informal employment; youth migration; youth unemployment; Africa; Ethiopia |
| JEL: | J20 J60 O15 O17 |
| Date: | 2015–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nlsclt:2015_004&r=iue |
| By: | Kumar, Sudhanshu (National Institute of Public Finance and Policy); Rao, R. Kavita (National Institute of Public Finance and Policy) |
| Abstract: | This paper presents an empirical model for minimising selection failure by tax departments in selecting cases for scrutiny assessment. This model also provides a new methodology for estimating tax gap from limited information that the department collects on a regular basis through scrutiny assessments. Using a maximum-likelihood procedure that corrects for sample selection bias, and the data on the scrutiny assessment exercise carried out by the income tax department, we estimate the model which relates the probability and extent of under-reporting to various inputs provided by the tax filer. The estimated model provides a mechanism to analyse the trade-off between two types of cases of failure - wrong selection of a case and failure to take up the potential underreporter. |
| Keywords: | Selection Failure ; Tax Gap |
| JEL: | C52 H26 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:15/150&r=iue |
| By: | Rijkers,Bob; Baghdadi,Leila; Raballand,Gael J. R. F. |
| Abstract: | Are politically connected firms more likely to evade taxes? This paper presents evidence suggesting firms owned by President Ben Ali and his family were more prone to evade import tariffs. During Ben Ali?s reign, evasion gaps, defined as the difference between the value of exports to Tunisia reported by partner countries and the value of imports reported at Tunisian customs, were correlated with the import share of connected firms. This association was especially strong for goods subject to high tariffs, and driven by underreporting of unit prices, which diminished after the revolution. Consistent with these product-level patterns, unit prices reported by connected firms were lower than those reported by other firms, and declined faster with tariffs than those of other firms. Moreover, privatization to the Ben Ali family was associated with a reduction in reported unit prices, whereas privatization per se was not. |
| Keywords: | Trade Policy,Debt Markets,Microfinance,Markets and Market Access,International Trade and Trade Rules |
| Date: | 2015–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7336&r=iue |
| By: | Fabrizio Borselli; Silvia Fedeli; Luisa Giuriato |
| Abstract: | The paper analyses the first Value Added Tax (VAT) fraud on Voice over Internet Protocol, the Phuncards-Broker operation, which took place in Italy in 2005-2007. The scheme consists of a chain of frauds on e-services that represents an important evolution of the "classic" models of carousel fraud, showing the increasing vulnerabilities of the VAT systems. The authors explore the policy implications for tax authorities, looking at how changes in their strategies may tackle the incentives to participate in the fraud. We argue that, in the short term, information technology (IT) solutions might offer some of the best answers when effectively combined with reverse-charge, while, in the longer-term, an extension of the One-Stop-Shop system may represent a new hypothesis of VAT reform in an anti-fraud perspective. |
| Keywords: | EU Value added tax, VAT fraud, reverse-charge, One-Stop-Shop system |
| JEL: | H20 H21 H22 H26 K34 K42 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp170&r=iue |
| By: | Mariano Bosch; Angel Melguizo; Ximena Peña; David Tuesta |
| Abstract: | This study analyzes different individual\'s factors that impact savings conditions, based on two innovative surveys performed by the Inter-American Development Bank (IDB) for the cities of Lima and Mexico D.F. |
| Keywords: | Emerging Economies, Financial Inclusion, Latin America, Mexico, Peru, Working Paper |
| JEL: | D14 D83 G21 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1519&r=iue |
| By: | Ghosh, Saibal; Kumar, Rakesh |
| Abstract: | The paper utilizes state-level data on household dependence on informal finance for an extended time span to examine whether it is impacted by a monetary contraction. The analysis suggests a substitution effect such that borrowing from moneylenders declines, whereas landlords and relatives turn out to be the preferred financing choices. In addition, the evidence also supports a hierarchy among these preferred financing choices. This suggests that monetary policy needs to take on board its impact on the hitherto neglected informal sector. |
| Keywords: | informal finance; monetary policy; India |
| JEL: | E52 O17 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65243&r=iue |
| By: | Annalisa Scognamiglio (CSEF, University of Naples) |
| Abstract: | This paper investigates the effect of diffusion of organized crime on local economies by examining a legal institution that operated in Italy between 1956 and 1988. The law allowed Public Authorities to force mafiosos to resettle to another town. Using variation in the number of resettled mafia members across destination provinces in a differences-in-differences setting, I find no conclusive evidence on the effect of the policy on crime or homicides, while there is a very robust positive impact on employment in the construction sector. Results are consistent with mafia exploiting these new locations mainly for money laundering. JEL Classification: K42, O17. |
| Keywords: | Organized crime, law making, shadow economy. |
| Date: | 2015–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:404&r=iue |