THE SHADOW ECONOMY: ILLICIT WORK AND HOUSEHOLD PRODUCTION: A MICROANALYSIS OF WEST GERMANY

This microanalysis of the shadow economy is on informal family income achieving strategies. In particular we analyze both sexes' paid illicit work as well as unpaid work in household production based on the representative West German Sfb3–Secondary Occupation Survey 1984. We estimate the influence of various socioeconomic variables including a legal occupation. As a result, illicit work and household production "Do-It-Yourself" activities are important informal family income achieving strategies. The respective regional state of the formal economy or one's own activities in social networks is of greater importance for informal economic activities than an individual income from formal economic activities.     

Job-search and foreign capital inflow — A three-sector general equilibrium analysis

The purpose of this paper is to extend the Fields' (1989) multi-sector job-search model in a three-sector general equilibrium framework by introducing international trade and capital as input. The three sectors are the rural sector, the urban informal sector and the urban formal sector. The rural sector and the urban informal sector use one type of mobile capital while the urban formal sector uses a sector-specific capital. We find that the effects of an inflow of foreign capital in the urban formal sector on unemployment and social welfare crucially hinge on the relative factor intensities of the rural sector and the urban informal sector. We show that there is a possibility of trade-off between the government's twin objectives of improvement in social welfare and mitigation of the urban unemployment problem. These results are extremely crucial from the view point of policymaking in an unemployment plagued, low-income developing economy.     

Comparing approaches to valuing sectoral net investments

In the literature of comprehensive national accounts, national net investments are used to indicate dynamic welfare improvement in an economy. A well-known approach associates national net investments with the shadow value of change in stock of capital assets in an economy. Following this capital stock approach, sectoral net investments can be defined as the shadow value of change in stock of capital assets owned by a sector in an economy. An alternative approach is based on future commodity flows to a sector. This commodity flow approach associates sectoral net investments with the present value of changes in future commodity flows to a sector. In the present paper, I compare these two approaches and prove that they coincide with each other only if the future commodity flows to the sector can be attributed to current stock of capital assets in the sector alone. In empirical studies, commodity flow approach can be a better alternative if the purpose is to estimate the contributions to national net investments of a recipient of future cash flows.     

The Shadow Economy in German Regions: An Empirical Assessment

Despite the increasing number of contributions to the literature, regional variations of the shadow economy have been hardly studied. This article analyses the determinants and derives the size of the shadow economy on the district level in Germany. I find that an inferior local labour market and the burden of taxation significantly contribute to the existence of the shadow economy, while a better enforcement of tax rules and regulations has the potential to deter such activities. Districts in the affluent south of Germany experience on average smaller shadow economies.     

The Welfare Economic Theory of Green National Accounts

This paper takes a critical look at the literature on green national accounts. The problem studied is to find a linear index of economic variables that responds to perturbations in the same direction as social well-being. The thesis of a large literature, that net national product (which is a flow) is that index in closed economies, is shown in some interpretations to be simply false and in others to suffer from deep estimation problems. It is argued that capital depreciation using shadow prices should certainly be included in national accounts, but that the right welfare index is a comprehensive measure of wealth, defined as the shadow value of an economy’s stock of all capital assets. It is shown that comprehensive wealth is usable as a criterion for policy evaluation as well as for determining sustainable economic development.     

Property Rights, Renewable Resources and Economic Development

This paper analyzes the role of endogenous property rights in the development of an open resource-based economy. I incorporate renewable resources and endogenous decisions on property rights into a convex growth model with the formal and informal sectors. I find that along the transition path to steady state, property rights enforcement is not constant but improves with time as well as involves intermediate property rights specification (between open access and perfect property rights). International trade and labor market are driving these endogenous changes. Property rights improve with favorable terms of trade when the economy exports resource services and stronger property rights help maintain the resource stock by deterring illegal harvest. This pushes labor away from the informal harvest sector toward greater participation in the formal sector of the economy. In turn, more labor participation in the formal sector along with capital formation increase the country’s output and consumption. Overall, with an open economy and well-functioning institutions, renewable resources have a positive impact on economic growth.     

Reform,informal sector,and extortion

Informal economy involving unrecorded, unregistered, extra‐legal activities employs majority of the work force in the developing world. Such extra‐legal existence of informal production is facilitated through extortion by agents of political forces in power. Also, extortion activities themselves constitute an informal segment. Full‐scale general equilibrium consequences of such institutions are rarely discussed in the literature. We develop a well‐specified general equilibrium model to explore the possible consequences of reform. Economic reform may have an expansionary effect on the number of extortionists. Depending on capital mobility and factor intensity assumptions informal output and informal wage may increase.     

Benefits Of Communications Infrastructure Capital In U.S. Economy

In this paper we empirically estimate the contribution of the communications infrastructure to the growth of output and productivity at the dis-aggregate industry and at the aggregate economy levels. The estimated value of the marginal benefits or the shadow price of the communications infrastructure capital is positive in each of 34 industries representing the major industrial sectors of the U.S. economy. This effect captures network externality benefits and can be interpreted as a willingness to pay by each industry for communications infrastructure capital services over and above their direct payments for communications services. These results suggest that an increase in communications infrastructure capital services reduces cost in all the industries and as a consequence that of the entire economy. The relatively high value of estimated total marginal benefits for the aggregate economy indicates a high social rate of return to the investments in communications infrastructure.     

The varying shadow of China's banking system

The rapid rise of shadow banking activities in China since 2009 has attracted a great deal of attention in both academia and policy circles. Most existing studies and commentary on China's shadow banking have treated it as a recent phenomenon that appeared after the Global Financial Crisis and China's response to it. In this paper, I argue that shadow banking is not a new phenomenon; it has always been a part of China's financial system since the 1980s, and arose from the need to get around various lending restrictions imposed by the central government on banks. I also emphasize that there are two types of shadow banking activities, those initiated by banks and those initiated by local governments or state-owned enterprises. I provide evidence suggesting that the shadow banking activities initiated by banks prior to 1996 helped directing credits to the more productive non-state sector and were efficiency enhancing. In recent years, however, I find that the shadow banking loans have a positive effect on real estate investments only, and their effects on investments by private firms outside the real estate sector have been negative.     

Sanctions and the shadow economy: empirical evidence from Iranian provinces

Using Iranian province level data from 2001 to 2013, this study finds that the international sanctions of 2012/2013 had a significantly stronger negative impact on the growth rate of the shadow economy than they did on the official GDP growth rate. Thus, the international sanctions on Iran have damaged the informal economy even more than the formal economy.     

Ethics and social capital for global well-being

Social capital is associated with considerable benefits for individuals and communities. Because some social capital is non-excludable, people may be disinclined to undertake activities that will create it. This is especially likely when the norm of self-interest is prominent. In addition, given the birds of a feather phenomenon, social capital appears to thrive in homogenous networks, and to languish in the face of diversity. I argue that social capital meets the criteria of a moral concept and that treating it as such can address these vulnerabilities. In particular, as a moral principle, social capital would be more demanding than mere self-interest and the moral requirement of universality would trigger a duty to act impartially with respect to networks. Since market interactions can create social capital, and social capital is a moral good, market interactions are in part constitutive of the good. I also argue that global social capital is important for both global well-being and sustainable globalization. Given the benefits of social capital, including it in the choice architecture as a moral principle will be worth the investment.     

SIZE OF THE PUBLIC SECTOR,ECONOMIC GROWTH AND THE INFORMAL ECONOMY: DEVELOPMENT TRENDS IN THE FEDERAL REPUBLIC OF GERMANY*

The growth of the public sector in the post-war period and the consequences of this development for economic growth is a strongly disputed subject of economic theory and policy. In this paper the development trends of state activities in the case of the Federal Republic of Germany are presented. The structure of public expenditures as well as the tax structure are taken into consideration and possible impacts on real economic growth are analysed. The negative correlations between some kinds of public expenditures (or taxes) and the growth rate of real GNP should not be taken in proof of the growth-retarding effects which might ensue from increasing state activities. It seems to be more likely that state activities have induced shifts of resources from the formal into the informal economy. Politicians should be aware that some measures of economic policy conventionally proposed will strengthen the movement into the informal economy, thus intensifying the current problems within the public budgets as well as in the social security system.     

Dynamics of social networks of urban informal entrepreneurs in an African economy

This paper carries out an analysis of the formation and transformation of social relations and networks of access to resources in the professional trajectory of micro-entrepreneurs operating in an urban informal African economy. The analysis of social networks is rooted in Granovetter’s structural embeddedness framework combined with the dynamic and discursive conception of social relations of Harisson White (embeddedness and decoupling). Life stories of micro and small entrepreneurs in Bobo-Dioulasso (Burkina-Faso) are analyzed by mixing qualitative and quantitative methods. Results suggest that the construction of social networks and interpersonal relations of access to resources is a long-term process. A co-construction of social networks and economic activity is observed; it challenges the argument that social capital is a substitute for a lack of personal resources. The growth of small and micro activities is linked to the professionalization and stabilization of a social network, and even to the institutionalization of access to resources.     

Unemployment and international shadow economy: gender differences

Adding to the body of research on cross-country determinants of the informal economy, this article studies how unemployment differences across gender drive the propensities to work in the informal sector. Results, accounting for possible simultaneity between unemployment and the shadow economy, show that unemployed males, rather than unemployed females, were more likely to operate underground. These findings about greater male propensities are generally robust to alternative considerations.     

THE BLACK SOCIAL ECONOMY: PERSEVERANCE OF BANKER LADIES IN THE SLUMS

In a neoliberal world where commercial financial services are controlled by elites, poor Black women in the slums are usually excluded from financial programs – even microfinance ones. In my empirical study of 491 people in Jamaica, Guyana and Haiti, I argue that the participation in informal banking systems by the poor, not only provides coping tools for livelihood survival, but banker ladies insert a program of social connectedness and political action when they organize these local resources. Banker ladies have a clear social justice agenda: to validate the business activities of marginalized people. Informal banks are a counter project to neoliberalism because it is focused on the collective, where poor Afro‐Caribbean women are creating alternative financial programs that are squarely part of the social economy.     

Tax collection,the informal sector,and productivity

An important determinant of informality in a country is its tax enforcement capacity, which some authors argue further distorts the decisions of firms and creates inefficiency. In this paper, I assess the quantitative effect of incomplete tax enforcement on aggregate output and productivity using a dynamic general equilibrium framework. I calibrate the model using data for Mexico, where the informal sector is large. I then investigate the effects of improving enforcement. I find that under complete enforcement, Mexico's labor productivity and output would be 19% higher under perfect competition and 34% higher under monopolistic competition. The source of this gain is the removal of the distortions induced by incomplete enforcement of taxes. These distortions affect the economy in three ways: by reducing the capital–labor ratios of informal establishments; by allowing low-productive entrepreneurs to enter; and by misallocating resources towards low-productive establishments. As a result, TFP and capital accumulation are reduced, and hence output. I decompose the gains following the guidelines of five leading papers in the literature of resource misallocation across plants. I isolate the effects of pure factor misallocation, distorted occupational choices, capital accumulation, and complementarities. I also study marginal improvements in enforcement and find that there is an inverted-U relationship between the size of the informal sector and output. This reflects the fact that improving enforcement entails a tradeoff: more taxes vs. fewer distortions.     

The informal economy and the growth of small enterprises in Russia1

This article uses Russian regional data to estimate the determinants of the informal economy and to examine the relationship between the informal economy and the growth of legally registered small private enterprises during the transition period. After obtaining an estimate of the size of the informal economy in each Russian region from 1992 to 1999, an analysis is performed to find whether reform progress and institutional qualities account for the informal economy. An evaluation of the links between the informal economy and the growth of small enterprises within Russia is then carried out. The findings suggest that Russia's informal economy resulted from a delay in reform and low qualities of institutions. It was found that the growth of small enterprises is positively affected by the informal economy. These results imply that the informal economy helped entrepreneurial activities to grow in the face of government failure, but these informal activities tend to become official over time.     

Forging new relationships: Social capital in the transistion

A theory of transitional economies is now emerging, much of which is evolutionary-institutional in nature and hence very critical of the naïveté of socalled shock therapy and the economic reasoning that supported it. Indeed it has become apparent that changing the formal rules of the game, difficult as this may be, is far from sufficient. The informal rules of the game, the customs and norms of the social order, are critical to the operation of the economy. These informal rules are often implicit or tacit, and therefore very difficult to reach on a policy level. This paper seeks to apply the concept of social capital to the transitional economic process using the former Soviet republic of Russia to draw attention to the complex issues of governance and legitimacy that are too often neglected in economic discourse.     

Exploring the dynamics of the shadow economy across US states

This article examines the dynamics of the shadow economy using data for 50 US states over the period 1998–2008. Using a panel VAR model, we analyse the impulse response of the shadow economy to an orthogonal shock in capital tax rates, educational attainment, union participation and gross state product. We find evidence of significant dynamics underlying the relationship between the shadow economy and its determinants. The results remain robust to alternate measures of the determinants of the shadow economy, alternate causal ordering of the variables in the system and conditioning on the level of income in each state.     

Formal microlending and adverse (or nonexistent) selection: a case study of shrimp farmers in Bangladesh

Microcredit schemes have become a popular means of improving smallholders’ access to credit and making long term investment possible. However, it remains to be explored whether the current microcredit schemes are more successful than earlier formal small scale lending in identifying successful borrowers. We studied shrimp farming in a rural region in Bangladesh where formal microlending is well established, but where more expensive informal microlending coexists with the formal schemes. Farmers – both those who exclusively use formal loans and those who also use informal loans – remain credit-constrained; both types overutilize labour in order to reduce the need for working capital. However, the credit constraint is actually milder for the informal borrowers: the implicit shadow price of working capital is substantially higher in the group that only takes formal loans than in the group that also uses informal loans. These results suggest that informal lenders – with their closer ties to the individual farmers – remain more successful in identifying those smallholder farmers that are most likely to use the borrowed funds successfully. Informal lenders have an information advantage that formal microlenders lack: the latter need to find routes to access this information in order for formal microcredit schemes to succeed.