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on Informal and Underground Economics |
| By: | Alan Finkelstein Shapiro; Victoria Nuguer |
| Abstract: | We study the labour market and macroeconomic effects of a carbon tax in the energy sector in emerging economies. We build a search and matching macro model with pollution externalities from energy production, endogenous green-technology adoption, and salaried-firm entry that incorporates two key elements of the employment and firm structure of these economies: salaried labor and firm informality and self-employment. Calibrating the model to emerging-economy data, we show that a carbon tax increases green-technology adoption and the share of green energy, but also leads to higher energy prices. As a result, the tax reduces salaried firm creation, the number of formal firms, and formal employment, and leads to an increase in self-employment, labor participation, and unemployment - a response that generates long run output and welfare losses. Green-technology adoption limits while self-employment exacerbates the quantitative magnitude of these losses. A joint policy that combines a carbon tax with a reduction in the cost of firm formality can offset the adverse effects of the tax and generate a transition to a lower-carbon economy with minimal economic costs. |
| Keywords: | environmental and fiscal policy, carbon tax, endogenous firm creation, green technology adoption, search frictions, unemployment and labour force participation, informality and self-employment, emerging economies |
| JEL: | E20 E24 E61 H23 J46 J64 O44 Q52 Q55 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1204 |
| By: | Finamor, Lucas |
| Abstract: | In labor markets with substantial informality, distinct working arrangements offer different prospects for workers. Formal employment provides insurance programs requiring social security contributions and taxes. Informal and self-employment lack public insurance to mitigate risk but offer valuable routes out of unemployment. Workers face complex tradeoffs involving present and future risks, the ability to insure them, liquidity, and earnings. To investigate this question, I develop a life-cycle model of employment type and savings in a frictional search environment. I estimate the model using linked longitudinal survey and administrative Chilean data, exploiting policy reforms. The estimates suggest that formal sector insurance is valued; informal workers would be willing to forgo earnings to be formal employees. Informal opportunities also provide substantial insurance against unemployment risk. Exploring counterfactual policies, I show how the insurance values can be interpreted as summary measures of the attractiveness of these sectors given the policy and labor market environment. |
| Keywords: | Labor market informality, unemployment insurance, social security |
| JEL: | D14 J26 J46 J64 |
| Date: | 2024–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121662 |
| By: | KOUAKOU, Dorgyles C.M. |
| Abstract: | Using firm-level data from the World Bank Enterprise Surveys, covering 159 countries from 2006 to 2023, we examine whether past informality affects the credit constraints of registered firms. Estimations, based on the entropy balancing method, indicate that registered firms that began operations informally are more likely to be credit-constrained than those that started in the formal sector. This finding is extremely robust to a variety of robustness tests, including instrumental variables, propensity score matching, potential omitted variables, restricted samples, alternative measures of credit constraints, and different specifications such as Linear Probability, Logit, and Probit models. Heterogeneity analysis reveals that the detrimental impact of past informality lessens with firm size, firm age, and better structural factors like regulatory quality, trade openness, entrepreneurial dynamism, and public spending. Productivity, competition from the informal sector, and the quality of financial statements are key channels through which past informality increases credit constraints for registered firms. |
| Keywords: | Past informality status; Credit constraints; Entropy balancing |
| JEL: | G20 O12 O16 O17 |
| Date: | 2024–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121766 |
| By: | Nina R. Brooks; Debashish Biswas; Sameer Maithel; Grant Miller; Aprajit Mahajan; M. Rofi Uddin; Shoeb Ahmed; Moogdho Mahzab; Mahbubur Rahman; Stephen P. Luby |
| Abstract: | We present results from a randomized controlled trial in Bangladesh that introduced operational practices to improve energy efficiency and reduce emissions in 276 “zigzag” brick kilns. 65% of intervention kilns adopted the improved practices. Treatment assignment reduced energy use by 10.3% (p-value |
| JEL: | D22 L6 O1 O14 Q56 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32794 |
| By: | Oscar Iván Avila-Montealegre; Juan J. Ospina-Tejeiro; Mario A. Ramos-Veloza |
| Abstract: | Healthcare expenditure in Colombia is expected to increase by 35% over the next eight years, due to population aging, rising costs, and domestic policies. These trends, in a context of high levels of informality and affiliation to the subsidized regime, add significant pressure to public finances. Using a dynamic general equilibrium model with heterogeneous households, we analyze the macroeconomic impact of financing a higher public healthcare expenditure through different taxes. The funding sources play a significant role in shaping the aggregate dynamics and income inequality. While consumption taxes are the best option in terms of output, financing with taxes on high-skilled labor improves income distribution. **** RESUMEN: En Colombia, el gasto publicó en salud incrementaría alrededor de 35% en los próximos ocho años debido al envejecimiento de la población, al aumento de los costos de tratamientos y medicinas, y a las políticas propias del sector. Estas tendencias, en un contexto de alta informalidad y dependencia del régimen subsidiado al presupuesto del Gobierno, ejercen una presión significativa s obre l as finanzas públicas. Utilizando un modelo de equilibrio general dinámico con hogares heterogéneos, analizamos el impacto macroeconómico de la financiación de un mayor gasto en s alud a través d e impuestos al consumo, al uso del capital y al trabajo. Encontramos que las fuentes de financiamiento tienen un papel significativo en la determinación de la dinámica agregada y la desigualdad del ingreso. Mientras que los impuestos al consumo son la mejor opción en términos de producto, la financiación mediante impuestos al trabajo de alta calificación mejora l a distribución del ingreso. |
| Keywords: | General Equilibrium; Heterogeneous Agents; Taxes; Government Expenditure, Equilibrio General, agentes heterogéneos, impuestos, gasto del gobierno |
| JEL: | E10 E62 E26 F41 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1278 |
| By: | Damiani, Genaro Martín |
| Abstract: | This paper provides new theoretical insights into the causes and consequences of indirect tax evasion. I propose a decision-making framework that contemplates biased perceptions of apprehension probabilities, which are affected by the environment where the agents operate. This microfounded formulation allows for the analysis of how taxation affects tax evasion (and vice versa) in the aggregate, emphasizing the existing relationships between the relative size of the shadow economy, tax rates, and government revenue. It is shown that a traditional Laffer curve (inversely U-shaped and with a unique maximum) can only exist under certain conditions. The maximum government revenue attainable turns out to be, in any case, lower than in the absence of tax evasion. Nevertheless, evasion control policies are proven to be always effective in increasing government revenue. |
| Keywords: | Indirect tax evasion; Law and Economics; Biased perceptions |
| JEL: | D80 H26 K42 |
| Date: | 2024–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121779 |
| By: | Sergio Galletta; Tommaso Giommoni |
| Abstract: | We explore the effects of exposure to conflict and violence on civic compliance with the law. Using newly digitized historical records of income declarations and tax audits from post-World War I Italy, we show that losing a relative as a direct result of the war reduces tax compliance. To account for the potential endogeneity of the treatment, we use an instrumental variable strategy exploiting the exogenous allocation of soldiers to more/less dangerous military units. Our results show that the effect of reduced tax compliance remains consistent across different measures of compliance and is not due to economic reasons. We also find that this negative impact is lessened when the state acknowledges the sacrifice of the deceased, in communities that suffered many casualties, or in areas with high levels of social cooperation before the war. Overall, our findings suggest that war can erode social norms, leading to a lower willingness to contribute to public goods, such as paying taxes. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11230 |
| By: | Anne Brockmeyer; Francisco Garfias; Juan Carlos Suárez Serrato |
| Abstract: | Can the provision of public goods strengthen the fiscal capacity of governments in developing countries and move them toward an equilibrium of widespread tax compliance? We present evidence of the impact of local public infrastructure on tax compliance, leveraging a large public investment experiment and individual property tax records from Mexico City. Despite the salience and large effects of these investments on access to infrastructure, property values, and local economic development, we find no changes in property tax compliance and can rule out even small increases. These null effects persist even when taxpayers are reminded about the tax-benefit link. |
| JEL: | H41 H71 O23 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32776 |