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on Informal and Underground Economics |
| By: | Pawel Doligalski; Luis Rojas |
| Abstract: | We characterize the welfare effects of the informal sector by proposing a decomposition into efficiency and redistribution components. We focus on an economy where a planner wants to redistribute income with taxation and sets the optimal tax scheme. Since the informal sector can limit the taxation possibilities for the government but at the same time provide a shelter against tax distortions for individuals we show that the net welfare effect can be positive or negative. We show that the relative advantage between informal and formal employment across different income levels is the key dimension that shapes the welfare costs of the informal sector. Using the model estimated with Colombian microdata, we show that, conditional on the optimal tax policy, the Colombian shadow economy benefits efficiency at the expense of redistribution. Consequently, the presence of the informal sector reduces welfare only when preferences for redistribution are strong. |
| Keywords: | shadow economy, informal labor market, income taxation, redistribution |
| JEL: | H21 H26 J46 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1452 |
| By: | Ana Aguilar; Jon Frost; Rafael Guerra; Steven Kamin; Alexandre Tombini |
| Abstract: | We examine the relationship between digital payment innovation, economic growth and informal activities in 101 economies over 2014–19. Following the economic growth literature, panel regressions relate growth rates of GDP per capita, total factor productivity (TFP) and the share of informal sector employment to lagged levels of these variables, the extent of digital payments use and various controls for endogeneity. We find that a one-percentage point increase in digital payments use is associated with increases in the growth of GDP per capita of 0.10 percentage points over a two-year period, and a decline in the share of informal sector employment of 0.06 percentage points over a two-year period. Insofar as the reported share of the population making digital payments ranges nearly from 0 to 100 percent, this is substantial. Digital payments do not appear to be significantly associated with rises in TFP, once controlling for general measures of digitalisation and government effectiveness, but they are linked to greater financial inclusion and credit access. Our results reinforce the case for government policies to encourage digital payments and, as complementary factors, access to the financial sector and information technology. |
| Keywords: | digital innovation, informal economy, productivity, economic growth |
| JEL: | G21 G23 O32 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1196 |
| By: | Ariela Micha (Universidad Nacional de General Sarmiento); Martín Trombetta (FUNDAR, CONICET-Universidad Nacional de General Sarmiento); Francisca Pereyra (Universidad Nacional de General Sarmiento) |
| Abstract: | The COVID-19 pandemic has highlighted the importance and fragility of care systems globally, resulting in multiple new challenges for women, who comprise the majority ofworkers in this sector. In particular, domestic work is the main source of employment for vulnerable women in Argentina, a sector globally characterized by high degrees ofinformality, low pay, and precarious working conditions. In this context, digital labor platforms are emerging as new contracting intermediaries, thus raising questions on their impact in terms of the generation of new labor and income opportunities for women. This article inspects the role of platforms in the definition of working conditions for domestic workers, by considering their influence in the formalization of the sector.Empirical evidence is provided to evaluate the contribution of platforms to the establishment of formal employment contracts for domestic workers. Based on surveydata from 300 women working through the sector's leading platform in the Metropolitan Area of Buenos Aires (transformed into 1048 worker-job observations), a fixed-effects model is estimated at the job level to measure the formalization effect of the platform. Results show that working through the platform almost triples the probability of landing a formal job, controlling for both observable and unobservable attributes of workers. |
| Keywords: | paid domestic work; digital labor platforms; formalization; Argentina |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:330 |
| By: | Christos Kotsogiannis; Luca Salvadori; John Karangwa; Innocente Murasi |
| Abstract: | Difficult to find another policy shift that has promised as much for tax compliance in developing countries as digitalization. Yet the evidence on its impact is scant. Using the universe of tax filings in Rwanda over the period 2012-2019, this paper investigates the extent to which digitalization (in the form of e-invoicing) has impacted on VAT compliance and, in particular, the effectiveness of tax audits. The evidence suggests that while e-invoicing adoption per se has increased firms’ net VAT payments, this impact is quantitatively limited, as firms seem to re-adjust their expenses so to keep VAT payments low. Interestingly, e-invoicing had a sizable compliance impact on net VAT liabilities re- ported by audited firms, with this impact being attributed to tax audits becoming more efficient, rather than to VAT registered firms becoming more cautious following their participation in the e-invoicing mechanism. |
| Keywords: | tax audit evaluation, technological change, digitalisation initiatives, tax administration, Tax evasion, tax compliance |
| JEL: | H25 H26 H32 O17 O33 D02 D22 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1454 |