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on Informal and Underground Economics |
| By: | Finkelstein-Shapiro, Alan; Nuguer, Victoria |
| Abstract: | We study the labor market and macroeconomic effects of introducing a carbon tax in the energy sector in emerging economies (EMEs) by building a framework with equilibrium unemployment and firm entry that incorporates key elements of the distinct employment and firm structure of EMEs. Our model endogenizes the adoption of green energy-production technologies--a core element of policy discussions regarding the transition to a low-carbon economy. Calibrating the model to EME data, we show that a carbon tax fosters greater green technology adoption and increases the share of green energy produced. However, the tax leads to higher energy prices, which reduce salaried firm creation and formal employment and increase self-employment, labor participation, and unemployment. As a result, the tax generates output and welfare losses. Green technology adoption plays a key role in limiting the quantitative magnitude of these losses, while the response of self-employment is crucial to explaining the adverse labor market and macroeconomic effects of the policy. Given this finding, we show that a carbon tax coupled with a plausible reduction in the cost of becoming a formal firm can offset the adverse effects of the tax and generate a transition to a lower-carbon economy with minimal economic costs. Finally, we show that lowering green-technology adoption costs or the cost of green-energy production inputs--two alternative climate policies--reduces emissions while limiting the output and welfare costs compared to a carbon tax. |
| Keywords: | Environmental and fiscal policy;carbon taxes;Endogenous firm creation;Green technology adoption;Search frictions;Unemployment;Labor force par ticipation;Informality and self-employment;Emerging economies |
| JEL: | E20 E24 E61 H23 J46 J64 O44 Q52 Q55 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:12813&r=iue |
| By: | Méndez-Vizcaíno, Juan Camilo; Moreno-Arias, Nicolás |
| Abstract: | This paper presents a comprehensive framework examining fiscal sustainability in developing economies. It integrates public capital, labor informality, and global liquidity shocks in a two-sector DSGE model for a small open economy, revealing their intricate interplay and nonlinear impact on State-Dependent Debt Limits. The framework highlights the significance of initial public capital levels and efficiency in determining the benefits of public investment. High informality rates erode the tax base, compromising the efficiency of public capital for fiscal purposes by weakening revenue generation relative to costs. Adverse global liquidity shocks may significantly contract the fiscal limit distribution only if they are perceived as permanent. Through model calibration and sensitivity exercises on Colombia's fiscal limit distribution, quantitative analyses shed light on underlying mechanisms. Findings challenge the frequent practice of cutting public investment in response to declining revenues, emphasizing it can actually reduce fiscal space. The framework underscores the importance of assessing fiscal policy consolidations aimed at ensuring debt sustainability and responses to global shocks using a structural model, while stressing the fiscal benefits of informality-reducing reforms. |
| Keywords: | Public Debt;Labor informality;public investment;Fiscal limit;Fiscal space;fiscal sustainability;Global liquidity |
| JEL: | E32 E62 H20 H30 H50 H60 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13049&r=iue |
| By: | Calijuri, Mónica; Pessino, Carola; López-Luzuriaga, Andrea; Schächtele, Simeon; González, Ubaldo; Chamorro, Carla |
| Abstract: | This paper studies tax evasion in the form of under-reported wages in Ecuador using microdata from a combination of electronic billing and personal income tax returns filed in 2017. Bringing together this novel combination of data, the study applies the standard method Pissarides and Weber (1989) used to estimate the under-reporting of income by comparing public- and private-sector employees. The results demonstrate empirically that under-reporting of income in private-sector employees is between 7 and 9 percent of their income, which translates to an estimated 3 percent of unregistered GDP. The under-reporting has important implications for social security, reducing these contributions by about 10 percent. Beyond the overall picture of under-reporting, the study detects substantial heterogeneities concerning firm size, concluding that the gap size is negatively correlated with the number of employees at the firm, which is consistent with different risks and administrative costs of envelope wages in small versus large firms. |
| Keywords: | income tax;Evasion;electronic billing |
| JEL: | H24 H26 D83 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:12912&r=iue |
| By: | Philippe Adair; Shireen AlAzzawi; Vladimir Hlasny |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:eru:erudwp:wp23-05&r=iue |
| By: | Olivier Bizimana; Shant Arzoumanian |
| Abstract: | Employment informality is widespread across North Africa. This paper aims to shed light on the role played by the informal sector in labor market adjustments over the business cycle. It finds that the response of labor markets to output fluctuations is more muted in countries with higher informality levels, like the North African economies. The analysis also confirms that informal employment is countercyclical and acts as a buffer during economic downturns in countries with relatively higher informality. However, contrary to what took place in past recessions, informal employment contracted sharply during the 2020 pandemic recession in high informality economies, suggesting that it did not play its traditional countercyclical role. By contrast, employment informality tends to fall modestly or increase during economic upturns, including the post-pandemic recovery. This finding presages the persistence of a large informal sector in the post-covid era in medium- and high-informality countries. |
| Keywords: | Informality; Labor Markets; Business cycles; Okun’s Law |
| Date: | 2023–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/182&r=iue |
| By: | Godfrey Kamutando (Post-doctoral Research Fellow, School of Economics, University of Cape Town and Policy Research in International Services and Manufacturing (PRISM).); Lawrence Edwards (School of Economics, University of Cape Town and Policy Research in International Services and Manufacturing (PRISM).) |
| Abstract: | Resource misallocation has the potential to reduce aggregate total factor productivity and undermine industrial development. These effects can be particularly pronounced in emerging economies where large market frictions impede efficient resource allocation. This paper investigates the extent and nature of resource misallocation between and within the formal and informal manufacturing sector in Zimbabwe. Applying the approach developed by Hsieh & Klenow (2009) to firm-level microdata, the results reveal extensive resource misallocation in both the formal and informal manufacturing sector. Misallocation is more pronounced in informal sector firms and is associated with relatively large capital market distortions. Further, misallocation is more pronounced amongst relatively productive firms, thus exacerbating aggregate losses in total factor productivity (TFP). Estimates indicate that aggregated gains in TFP of 126.7% can be realized through efficient resource allocation. |
| Keywords: | Misallocation, total factor productivity, informal sector |
| JEL: | E24 D24 E29 L60 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ldr:wpaper:302&r=iue |
| By: | Bobicì, Vida; Delgado, Lucia; Gerardino, María Paula; Hennessey, Michael; Martinez-Carrasco, José |
| Abstract: | Digital one-stop shops for firm registration can significantly reduce costs and increase access to information for firms entering the formal sector. This paper examines the impact of a nationwide program with a one-stop registration shop and lower registration fees. In addition to analyzing its impact on the number of firms registering in the formal sector, this study explores how the program reshapes the labor market for women and men. The empirical setting, the Dominican Republic, is characterized by high levels of firm and labor informality. The government launched the digital one-stop shop called Formalízate in 2013. To analyze its impact, this paper takes advantage of the sequential rollout of the program across provinces in the country. Results show that the launch of the program in a province is associated with a greater number of micro firms entering the formal market. Interestingly, these firms are concentrated in sectors in which informality was high prior to rollout of the program, especially the commerce and tourism sector. In addition, the results show that women's participation in the labor forced is impacted by the program, but men's participation is not. More specifically, the presence of Formalízate increased women's participation in the labor market as self-employed entrepreneurs. |
| Keywords: | formalización;regulación de registro;evaluación de impacto;microempresas;autoempleo |
| JEL: | O17 O12 J40 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13047&r=iue |
| By: | López-Luzuriaga, Andrea; Scartascini, Carlos |
| Abstract: | The existing literature shows that women are more likely to pay taxes than men. Yet, there is less consensus on the gendered responses to interventions aimed at boosting tax compliance among non-payers. In this study, we exploit a field experiment designed to increase property tax compliance to investigate this gender disparity. Our findings reaffirm that women are typically more diligent in paying their taxes than men. Interestingly, while the receipt of a deterrence letter prompts women to pay earlier, it does not necessarily augment their overall compliance. Conversely, men, upon receiving a deterrence letter, show a marked improvement in overall compliance. We also find that the size of the tax bill influences women's compliance behavior (the likelihood of paying'increases substantially for small bills), but not men's. To unpack this intriguing finding, we examine survey data to uncover the differing motivations and resources between genders. This analysis suggests that, although women may be more motivated to pay, they might encounter significant liquidity constraints. Our observations are consistent with a simple analytical model that correlates compliance to tax morale, risk aversion, and budget constraints. This research underscores the potential for tax policies and enforcement procedures to exacerbate income inequality between genders, especially in low tax-enforcement contexts where tax evasion is substantial. |
| Keywords: | taxes;Tax compliance;Field experiment;Development;Latin America and the Caribbea |
| JEL: | H24 D31 J16 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:12983&r=iue |
| By: | Augustin Bergeron; Gabriel Z. Tourek; Jonathan L. Weigel |
| Abstract: | This paper investigates how tax rates and tax enforcement jointly impact fiscal capacity in low-income countries. We study a policy experiment in the D.R. Congo that randomly assigned 38, 028 property owners to the status quo tax rate or to a rate reduction. This variation in tax liabilities reveals that the status quo rate lies above the revenue-maximizing tax rate (RMTR). Reducing rates by about one-third would maximize government revenue by increasing tax compliance. We then exploit two sources of variation in enforcement — randomized enforcement letters and random assignment of tax collectors — to show that the RMTR increases with enforcement. Including an enforcement message on tax letters or replacing tax collectors in the bottom quartile of enforcement capacity with average collectors would raise the RMTR by about 40%. Tax rates and enforcement are thus complementary levers. Jointly optimizing tax rates and enforcement would lead to 26% higher revenue gains than optimizing them independently. These findings provide experimental evidence that low government enforcement capacity sets a binding ceiling on the revenue-maximizing tax rate in some developing countries, thereby demonstrating the value of increasing tax rates in tandem with enforcement to expand fiscal capacity. |
| JEL: | H11 H21 H26 H71 O12 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31685&r=iue |
| By: | Bobby W. Chung (University of South Florida) |
| Abstract: | In 2014, California lifted legal work status requirement for dozens of occupational licenses - a major obstacle for undocumented immigrants in the US to access professional jobs. This paper assesses its effects on the employment outcome of undocumented immigrants in California. Analysing likely undocumented immigrants in the American Community Survey, I find that the law increased their employment, particularly in lower-skill or blue-collar licensed occupations, and older or Hispanic workers. I also find the law did not crowd out documented or domestic workers. |
| Keywords: | Occupational licensing, Undocumented immigrants, Employment |
| JEL: | J15 J44 K37 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:usf:wpaper:2023-02&r=iue |
| By: | Cruces, Guillermo |
| Abstract: | Cash transfer and other social protection programs in developing countries have often been accompanied by measures to foster financial inclusion, such as the adoption and use of bank accounts and electronic means of payments. Argentina's social benefits are paid in bank accounts and accessed through debit cards. With the simultaneous objective of fostering formality among beneficiaries and stores, the use of debit cards for purchases has been incentivized by means of additional subsidies. We studied the low take-up of these extra benefits by means of a field experiment involving 400, 000 beneficiaries of Argentinas largest conditional cash-transfer program (with 2.2 million beneficiaries who are the parents of four million children, 40% of the countrys 0-17-year olds). By using their debit card to spend the allowance, rather than withdrawing cash from ATMs, they can receive a rebate of 15% of their expenditures. However, they systematically fail to claim this benefit: only about 25% of beneficiaries receive this transfer. Our experiment provided information about the effectiveness of an information campaign conducted via text messages or through on-screen messages at ATM machines. The campaign increased purchases with debit cards and subsequent rebates significantly but not substantially in the short run. However, beneficiaries who increased their use of debit cards do not exhibit a higher probability of having access to credit through the financial system, nor higher levels of formal employment. The results indicate that cultural factors (a preference for cash), administrative hassle and citizen security issues are relevant issues that limit the potential of financial inclusion through increased use of digital means of payment. |
| Keywords: | Take-up of social benefits;financial inclusion |
| JEL: | C93 H26 K34 K42 Z13 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13034&r=iue |