the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

introduction imperfect information and rural credit markets puzzles and policy perspectives rural credit markets have been at the center of policy intervention in developing countries over the past forty years many governments supported by multilateral and bilateral aid agencies have devoted considerable resources to supplying cheap credit to farmers in a myriad of institutional settings the results of many of these interventions have been disappointing and one explanation for this must be that they were based on an inadequate understanding of the workings of rural credit markets the articles in this symposium issue are devoted to empirical and theoretical investigations of rural credit markets in the framework of the imperfect information paradigm the authors show how this framework is useful not only in explaining puzzling features of these markets but also in providing a policy perspective to assess the successes and failures of specific interventions

dodging the grabbing hand the determinants of unofficial activity in 69 countries across 69 countries higher tax rates are associated with less unofficial activity as a percent of gdp but corruption is associated with more unofficial activity entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption dodging the grabbing hand in this way reduces tax revenues as a percent of both official and total gdp as a result corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates 2000 elsevier science s a all rights reserved

regulatory discretion and the unofficial economy johnson kaufmann and shleifer 1997 find that the share of the unofficial economy in gdp is determined by the extent of control rights held by politicians and bureaucrats in post communist economies exploring in more detail the role of bribes and using a broader data set from the oecd latin america and transition economies we find that the unofficial economy accounts for a larger share of gdp when there is more corruption and when the rule of law is weaker while these findings are consistent with the earlier results for transition economies in the larger country sample we find it is not necessarily the case that more regulation or higher taxes directly increases the size of the unofficial economy the problem appears to be not regulation or taxation per se but whether the state administrative system can operate without corruption a high level of regulatory discretion helps create the potential for corruption and drive firms into the unofficial economy

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

tax evasion the underground economy and financial development abstract we study the relationship between the underground economy and financial development in a model of tax evasion and bank intermediation agents with heterogeneous skills seek loans in order to undertake risky investment projects asymmetric information between borrowers and lenders implies a menu of loan contracts that induce self selection in a separating equilibrium faced with these contracts agents choose how much of their income to declare by trading off their incentives to offer collateral against their disincentives to comply with tax obligations the key implication of the analysis is that the marginal net benefit of income disclosure increases with the level of financial development thus in accordance with empirical observation we establish the result that the lower is the stage of such development the higher is the incidence of tax evasion and the greater is the size of the underground economy

course requirements for bachelor s degrees in economics we conducted a national survey of department chairs to investigate whether departments of economics changed course requirements for bachelors degrees since the siegfried and bidani 1992 paper using 1980 data there have been few changes to course requirements most notable are a large increase in the number of departments requiring econometrics and a drop in departments requiring courses such as money banking and economic history courses once required in many business schools

gender entrepreneurship and the formal informal dilemma evidence from indonesia summary this study analyzes the preferences of entrepreneurs about formality and focuses on the role of gender relying on original data collected in indonesia we unpack the differences between various types of female entrepreneurs currently in the informal sector according to their preferences about formalization contrary to the existing literature we find that female entrepreneurs possess highly nuanced preferences about formalization that are conditional on many factors the preference for formalization is strongest among female entrepreneurs who are older married rural based and have recently started their firms our work contributes to research that seeks to better understand entrepreneurial preferences and the role that gender plays

use it or lose it teaching literacy in the economics principles course americans know little about economics recent surveys document shocking gaps in understanding of markets macroeconomic policy and the economics of government both the general public and college students including economics course takers do poorly on questions that check their knowledge in a gallup survey william b walstad and max larsen 1992 most knew that competitive prices are determined by supply and demand but 65 percent of the public and 43 percent of college seniors believed that during a crisis in the middle east government should prohibit oil companies from raising prices p 65 in a harris poll parade magazine 1999 only 58 percent of adults knew that people are likely to respond to a doubling in the relative price of beef by buying more poultry and less beef only one in three understood that those who borrow money at a fixed interest rate are most likely to benefit from inflation in a minneapolis federal reserve survey david fettig 1998 only 30 percent knew that government could reduce high inflation by decreasing spending and the money supply taking a high school or college economics course has little impact on economic understanding walstad and ken rebeck 2002 in a 15 question gallup survey of college seniors college economics course takers scored 9 highschool economics course takers scored 8 and those who took no economics scored 7 walstad and sam allgood 1999 there is hope test takers do better with questions that concern their day to day lives louis harris and associates 1999 and adults believe economics is important 88 percent want politicians to have a good understanding of economics and 96 percent think that basic economics should be taught in high school harris and associates 1999 while objections can be raised about what questions were asked and how they were worded national surveys administered by several respected firms support the same conclusion americans know little about economics

the state of economic education during the first fifty years of the american economic association aea its leaders considered the teaching of economics to be an important subject for discussion and debate aea founders set as a goal to educate public opinion about economic questions and economic literature elton hinshaw and siegfried 1991 p 373 during the last 50 years aea leaders have largely ceded questions on teaching to specialists in 1955 the association created the committee on economic education cee and charged it with improving the status of economic education within the profession stimulating and encouraging professional work on economic education and arranging economics education sessions at the aea meetings the association later revised the charge to include actively improving the quality of economic education at all levels from pre college to college adult and general economic education hinshaw and siegfried 1991 it is time to direct the attention of the entire profession not just economic education specialists toward the importance of educating a broad spectrum of the public about economics

informal firms in developing countries entrepreneurial stepping stone or consolation prize the potential dynamic benefits of a firm having the option to adopt informal status are analysed informality may be a stepping stone without which formality may never be achieved this result is obtained for a broad range of realistic parameter values suggesting a potential dynamic case for government support of informal firms informality may alternatively play a converse role as a consolation prize with a firm only entering an industry formally because it recognizes that if profitability is disappointing it can switch to informality however this result is obtained for a range of parameter values so narrow as to be of no practical significance

why do firms hide bribes and unofficial activity after communism abstract our survey of private manufacturing firms finds the size of hidden unofficial activity to be much larger in russia and ukraine than in poland slovakia and romania a comparison of cross country averages shows that managers in russia and ukraine face higher effective tax rates worse bureaucratic corruption greater incidence of mafia protection and have less faith in the court system our firm level regressions for the three eastern european countries find that bureaucratic corruption is significantly associated with hiding output

credit markets in northern nigeria credit as insurance in a rural economy this article addresses the issues of imcomplete markets and imperfect information in the context of credit markets in rural northern nigeria in much recent theoretical literature the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions in contrast it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities information asymmetries between borrower and lender are unimportant and their institutional consequences the use of collateral and interlinked contracts are absent credit transactions play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender

job search and mobility in developing countries theory and policy implications abstract a labor market model is developed in which the formal sector is characterized by search frictions whereas the informal sector is competitive we show that there exists a unique steady state equilibrium in this dual economy we then consider different policies financed by a tax on firms profits we find that reducing the unemployment benefit or the firms entry cost in the formal sector induces higher job creation and formal employment reduces the size of the informal sector but has an ambiguous effect on wages we also find that an employment wage subsidy policy and a hiring subsidy policy have different implications in particular the former increases the size of the informal sector while the latter decreases it

poverty and the shadow economy the role of governmental institutions this paper examines the impact of poverty on the size of the shadow economy using cross country panel data for over 100 countries for the period 1991 2015 the results show that poverty has a positive and significant effect on the size of the shadow economy furthermore we argue that the quality and size of governmental institutions matter in moderating the impact of poverty on the shadow economy considering the interactions between poverty and government quality and size we find that poverty has the largest effect on the size of the shadow economy when government quality is the lowest and the size of the government is the largest these results withstand a battery of robustness checks

incentives in organizations n 1975 steven kerr published on the folly of rewarding a while hoping for b the argument was simple you get what you pay for kerr distilled this unifying theme from a disparate set of examples involving politicians soldiers doctors orphanage directors professors and students as well as manufacturing and clerical employees and even human resource managers from these examples kerr pp 77980 concluded that two main causes of distorted incentives are fascination with an objective criterion where individuals seek to establish simple quantifiable standards against which to measure and reward performance and overemphasis on highly visible behaviors when some parts of the task are highly visible while others are not it took agency theory 15 years to express kerr s title not to mention to evaluate or extend his conclusions during this period agency theory was obsessed with the tradeoff between incentives and insurance even though clear eyed observations like kerr s about the design and performance of real incentive contracts suggested that several other issues are at least as important fortunately recent work has brought agency theory not only to kerr s position but beyond in this paper i summarize four new strands in agency theory that help me think about incentives in real organizations as a point of departure i begin with a quick sketch of the classic agency model i then discuss static models of objective performance measurement that sharpen kerr s argument repeated game models of subjective performance assessments incentives for skill development rather than simply for effort and incentive contracts between versus within organizations i con

gender and microfinance performance why does the institutional context matter summary this paper investigates why and under which institutional circumstances female membership in microfinance institutions mfi improves mfi performance in terms of debt repayment specifically this paper theorizes that female membership in mfis improves the mfi s performance through enhanced debt repayment especially under adverse cognitive and regulatory institutional conditions we draw upon unique qualitative and quantitative data covering 26 microfinance projects in 22 african eastern european latin american and asian countries this study has implications for the microfinance literature in that it challenges the widely held assumption that female participation has a positive effect on mfi performance under all institutional circumstances

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

military service and human capital accumulation evidence from colonial punjab this paper estimates the impact of military recruitment during world war i on human capital accumulation in colonial punjab the empirical strategy exploits the exogenous increase in recruitment by the indian army during the war higher military recruitment is found to be associated with increased literacy at the district religion level the observed improvement in the human capital stock appears to be driven by the informal acquisition of literacy skills by serving soldiers

shadow economies at times of banking crises empirics and theory this paper investigates the response of the shadow economy to banking crises our empirical analysis based on a large sample of countries suggests that the informal sector is a powerful buffer which expands at times of banking crises and absorbs a large proportion of the fall in official output to rationalise our evidence we build a dynamic stochastic general equilibrium model which accounts for financial and labour market frictions and for nominal rigidities in line with the empirical literature on the shadow economy we assume that in the informal sector access to external finance is limited and the production technology is relatively more labour intensive following a banking shock in the official sector the model predicts a large negative transmission to the unofficial economy that substantially dampens the overall effect of the shock

homeownership informality and the transmission of monetary policy cross country aggregate data exhibits a strong positive relationship between the size of the informal employment and aggregate homeownership rates we investigate this empirical observation using a cash in advance model with housing markets and argue that the rate of inflation is important in explaining the nexus between informality and homeownership rates specifically we uncover a novel monetary transmission mechanism and show that households with informal employment desire to economize on their short term cash usage and avoid periodic rental payments when i informality is associated with constrained business investment finance and ii inflation expectations are high our empirical and theoretical findings highlight an important interaction between the conduct of monetary policy and the performance of housing markets

crowd out and diversity abstract research has shown that altruism is lower in diverse communities can this phenomenon be counteracted by government intervention to answer this question this paper introduces diversity to the canonical model of warm glow giving diversity may have two effects on incentives it may attenuate individuals altruistic preferences for public goods and it may cool off the warm glow that individuals get from voluntarism either of these effects leads to diverse communities having lower levels of public goods consistent with prior research however these effects have opposite implications for the efficacy of government intervention i then empirically investigate whether government intervention is more effective in diverse communities for identification i exploit the supreme court mandated 1991 expansion of the ssi program using a new dataset of united methodist churches from 1984 to 2000 the results show that the expansion of ssi crowded out charitable spending by churches the crowd out estimate for the average church is reasonably large but this masks significant differences in crowd out between communities crowd out occurred almost entirely in relatively homogeneous communities there is only modest evidence of crowd out in racially diverse communities thus diverse communities while having the lowest levels of altruism are in this instance the most amenable to government intervention

the impact of a social program on labor informality the case of auh in argentina abstract the recent universal child allowance program in argentina provides monthly cash transfers to unregistered workers with children as the program is accessible only to those who are not in formal employment it may discourage workers transitions to the formal sector in this paper we estimate this effect by comparing the transitions to registered jobs of eligible workers with children with a similar but not eligible group without children over time the results suggest a statistically significant and economically large disincentive to the labor market formalization of the program beneficiaries in contrast there is no sufficient evidence for the existence of a significant incentive for registered workers to become informal

a financial contracting approach to the role of supermarkets in farmers credit access traditional moneylenders monitor farmers to ensure that their investment is not diverted modern farming contracts offered by supermarkets in developing countries often entail a loan component and monitoring arises as well however unlike moneylenders supermarkets do care about the attributes of the product whether such attributes are obtained is influenced largely by the advice and the extension services received by farmers we build a financial contracting model where we show that supermarkets optimally undertake both the monitoring and the advisory missions this contract is shown to potentially enhance credit access for small farmers but sometimes also involves excessive monitoring

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

public procurement and rent seeking the case of paraguay summary a model of entrepreneurial choices in an economy with a corrupt public procurement sector is built providing predictions along two dimensions first corrupt public institutions operate by offering contracts without competition and more corrupt entities channel larger share of their budget in this way second these firms enjoy extra returns so that procurement related activities attract the best entrepreneurs a large scale microeconomic database including all public procurement operations over a 4 year period in paraguay amounting annually to approximately 6 of the country s gdp is then used to corroborate these predictions

informality and credit constraints evidence from sub saharan african mses abstractthe attributes of micro and small enterprises mses influencing access to credit in particular the level and role of firm informality are analysed in the article the puzzle is the push for mses to join the formal sector and the tug to avoid the extra burden it places on the firm it is important to know more clearly what forces are at work and the sources of the causal effects this study uses data from the world bank enterprise surveys for five low income countries lics in sub saharan africa the method is empirical and as we find informality to be endogenous to credit constraints an instrumental variable approach is estimated further to address the possibility of reverse causality an instrument for the informality variable is required not registered with inland revenue tax office is the chosen instrument variable the findings reveal that as the probability of a firm operating in the formal sector increases there is greater access to external credit the causality relationships are

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

informal sector and economic development the credit supply channel i introduction a popular idea in policy circles holds that granting potential entrepreneurs access to formal credit markets by improving public institutions and specific regulations is an important condition for economic development in particular reforms allowing economic agents to formalize and therefore gain better access to formal credit markets should naturally lead them to invest more and increase their productivity ultimately the benefits of higher overall growth would ensue such reforms typically include strengthening property rights on land and housing and reducing burdensome registration procedures 1 this article examines in a general equilibrium framework the chain of causality behind that line of thinking it does so by modeling individual agents decisions to become formal in relation to their access to a credit market plagued by moral hazard and examining the effect of these decisions on the size of the formal sector and the level of output the main insight is that while better property rights and less burdensome regulations under certain conditions may facilitate agents access to formal loans such reforms interact with the characteristics of the credit market and its environment in ways that crucially shape the ultimate magnitude of the effect on formality and output in a nutshell the modeling strategy relies on an overlapping generations model where economic agents when young undertake productive projects deciding whether to work in the formal or informal sector these decisions depend on the trade off between the costs of entry and the benefits of accessing the formal credit market which itself is a function of the quality of enforcement and property rights that allow for efficient loan recovery by lenders entrepreneurs save part of their profits for future consumption and these savings constitute the next period s supply of credit in the economy in this context the equilibrium interest rate that results from the interaction between the supply of lendable funds and the demand for credit is a key variable in determining the equilibrium level of formality indeed lower entry costs and better contract enforcement unambiguously imply a larger formal sector a higher demand for credit and higher output as long as an infinitely elastic supply of funds is available at the prevailing interest rate e g an open economy with no barriers to international capital flows and a competitive banking sector however absent these conditions an increase in demand resulting from a higher rate of formality increases the interest rate which weakens the links among reform formality and output finally we present empirical evidence related to the implications of our model we find that countries with lower entry costs or a higher quality of enforcement tend to have larger credit markets and smaller informal sectors and that this relationship is stronger when the banking sector is more competitive and the economy is more open to international capital flows using industry level measures of financial dependence and controlling for country fixed effects we show that the results on credit supply also hold in a cross and within industry setting a related literature the argument above is composed of two parts first is the link between better regulations and access to credit at the individual level which results in increased incentives to enter formality and second is the link between these individual decisions and output or growth it is relatively well understood how light registration procedures and strong property rights interact to provide the necessary conditions to access the credit market as de soto 1990 showed in the case of peru and further documented by djankov et al 2002 for 85 countries firms first face significant entry costs in the form of registration and license fees to be able to operate formally

modelling the informal sector formally abstract the theoretical characterization of formal informal sector dualism by labor market dualism is integrated with its empirical characterization by size dualism by supposing that the minimum formal sector wage is only enforced for firms greater than a certain size a firm s size varies directly with the talent of its enterpreneur manager and the choice between formal and informal sector entrepreneurship is determined endogenously it is then shown that the size gap between the smallest formal sector firm and largest informal sector firm varies directly with the formal informal sector wage differential which in turn is shown as expected to increase the further is the minimum wage above the market clearing wage the comparative statics of changes in the size of the firm above which the minimum wage is enforced are also examined

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

informal sector the credit market channel abstract we build a model of firms choice between formality and informality complying with costly registration procedures allows the firms to benefit from key public goods enforcement of property rights and contracts that make the participation in the formal credit market possible in a moral hazard framework with credit rationing their decision is shaped by the interaction between the cost of entry into formality and the relative efficiency of formal versus informal credit mechanisms and their related institutional arrangements the model is consistent with existing stylized facts on the determinants of informality

chalk and talk a national survey on teaching undergraduate economics reports on the desirable goals and characteristics of economics programs and reforms proposed to attain such programs e g w lee hansen 1991 hirschel kasper et al 1991 have ignored the issue of how economics is to be taught that is surprising because several popular trade books have recently appeared condemning teaching practices at american colleges and universities some of these books were written by economists e g martin anderson s 1992 impostors in the temple and used economics courses as notable examples of these problems long before these reports and books appeared the national council on economic education ncee together with the american economic association s aea committee on economic education began sponsoring programs to improve the teaching of economics and to promote innovative teaching methods in becker and watts 1995 we describe many of these improvements and explain how economists could use alternative teaching methods in different undergraduate courses until now however we could not provide data on how widely those approaches were used we do that here based on responses to a national survey

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

government policies and graft in an economy with endogenous labor supply abstract this paper is an extension of marcouiller and young s am econ rev 85 1995 630 paper which shows that in a two good economy with constant labor supply the government can always increase graft by squeezing the formal sector out of existence in this paper we find that if individuals choose the amount of labor they supply the government can increase graft by eliminating formal production in relatively rare cases

what knowledge is most worth knowing for economics majors asks it in a new context the old question is a paraphrase of the title of herbert spencer s famous essay what knowledge is of most worth the new context is to pose the question for undergraduate students majoring in economics my intent is to engage you in reflecting about what kinds of knowledge and skills our economics majors should master what proficiencies they should be able to demonstrate by the time they graduate from college my focus is on not the select few who plan to enter graduate economics programs but rather the vast majority who go out into the world and will become the next generation of leaders i propose a list of knowledge and skills perhaps a better word is proficiencies that we might reasonably expect our majors to demonstrate upon graduation this is by no means a final or definitive list rather it is offered to stimulate discussion about the meaning of the economics major and how to give it more meaning

can africa compete with china in manufacturing the role of relative unit labor costs in this paper examine sub saharan africa s ssa bilateral trade and cost competitiveness with china we review patterns of bilateral trade between ssa and china showing an extraordinary imbalance in the structure of trade in that china overwhelmingly exports manufactured products to ssa and almost exclusively imports primary products in return our principal means of assessing the competitiveness of ssa s manufacturing sector vis a vis china are measures of relative unit labor costs rulc we find that african rulc levels have generally been very high relative to china but declined over the 2000s as china s wages have risen faster than chinese productivity while the reverse is true for the ssa countries in our sample nevertheless rulc vis a vis china remained elevated for many ssa countries as of 2010 generally high rulc along with weaknesses in the business climate suggest that most ssa countries are unlikely to be competitive in labor intensive manufacturing any time soon

tax evasion investment shocks and the consumption puzzle a dsge analysis with financial frictions recent studies identify marginal efficiency of investment mei shocks as important drivers of the business cycle however dynamic stochastic general equilibrium dsge models struggle to explain macroeconomic comovements between consumption and the key real variables after a mei shock moreover engaging in tax evasion practices is often an answer to financial constraints which have been recognized as important determinants of cyclical fluctuations as well we use a medium scale new keynesian dsge model that combines tax evasion with financial frictions to simulate a mei shock we show that entrepreneurial tax evasion can solve the comovement problem to a fair extent

modeling informality formally households and firms i introduction recent estimates indicate that around 10 of gross domestic product gdp in the united states is produced by individuals or firms that evade taxes schneider and enste 2000 in latin america approximately 50 of all salaried employees work informally an important question is therefore what are the determinants of informality unfortunately three decades of research have not yet yielded a consensus opinion on this point the traditional explanation initiated with the work of lewis 1954 assumes the existence of segmented labor markets in which some workers do not have access to jobs in the regulated formal sector these workers are forced to accept lower paying informal sector jobs that usually involve inferior working conditions while this view has become prevalent in the development literature direct empirical tests of the premise that informal workers would expect higher wages in the formal sector yield mixed results for instance magnac 1991 maloney 2004 and pratap and quintin 2004 do not find compelling evidence of segmentation between the formal and the informal sectors using data from colombia mexico and argentina respectively it is nonetheless certainly plausible that the presence of unions might segment the labor market layard et al 1991 however even if we believe that unionization has been an important factor in determining labor market segmentation in the past the pronounced decline of unionization throughout latin america over the last two decades seems to be a less satisfactory explanation of the phenomenon at the present time especially since informality increased in most countries in latin america during the same period gasparini and tornarolli 2006 another approach emphasizes the role of labor market regulation and taxation as the main cause of informality a pioneering study by de soto 1989 describes how informal workers develop their own laws and institutions to make up for the shortcomings of the official legal system it is certainly true that the size of the shadow economy is affected by the burden of taxes and social security contributions as well as by the many other regulations governing the official economy the problem with adopting this explanation of informality unreservedly however is that it overlooks the fact that workers have nonpecuniary preferences for the sector they work for and these preferences play a role in determining the equilibrium level of formality of an economy in particular workers in the informal sector are not eligible for socially mandated benefits three stylized facts characterize informality 1 small firms tend to operate informally while large firms tend to operate formally 2 unskilled workers tend to be informal while skilled ones have formal jobs 3 ceteris paribus secondary workers a worker other than the household head are less likely to operate formally than primary workers in this paper we present a model of an economy in which the sizes and wages of the formal and informal sectors are endogenously determined that accounts for these three facts our model entails a continuum of types on both sides of the labor market i e firms and workers firms choose whether to operate formally or informally and workers choose in what sector they work in equilibrium managerial talent determines size dualism at the firm level and human capital is the factor that determines whether workers are employed in the formal or informal sector in our model both heterogeneous firms and workers have preferences over the sectors they operate and choose optimally whether to function formally or informally by contrast a prominent feature of the preexisting literature is the idea that workers decisions play no role in determining the equilibrium of the economy thus our model is the first one in which policies that affect workers preferences as well of course as firm preferences over the formal or the informal sector such as pension plans public health issues and unemployment and any social benefits will affect the sizes and wages of the formal and the informal sectors

national voluntary content standards for pre college economics education after economics was included in the goals 2000 educate america act in 1994 the national council on economic education ncee constructed a coalition of organizations to write voluntary content standards to guide economics instruction in american schools the coalition includes representatives from the ncee and its network of affiliated councils and centers the national association of economic educators the foundation for teaching economics and the american economic association s committee on economic education the goal of the coalition is to write content standards for the teaching of economics in grades 1 12 such standards as developed for other disciplines are not standards in the usual use of the word rather than identifying required performance levels on specified criteria these standards specify the criteria as such the standards consist of what economists usually call principles they are in fact the fundamental propositions of economics to avoid confusion among teachers however the standards writing committee calls these principles standards national disciplinary content standards are not mandates from the federal government rather they are a resource for states and local school districts for individual schools and for teachers who are responsible for specifying and integrating the curriculum into their schools content standards have public good characteristics they are nonrivalrous in consumption and it is difficult to preclude access to them in addition their production relies on fixed development costs rather than variable reproduction costs implying substantial scale economies to develop similar standards at the state or local level would duplicate efforts consequently there is a case as is argued in standard 16 for collective provision of national standards there is a practical reason to develop national economics content standards as well without these standards some states may omit economics from their curriculum entirely some may give economics cursory attention or write vague standards that are difficult to implement or focus their economics standards on insignificant content some curriculum designs may include other subjects e g personal finance business or marketing under the economics rubric thereby marginalizing economics voluntary national standards increase the probability that economics is included in school curricula without them economics risks the prospect of being dropped from the curriculum teachers responsible for economics instruction are often overwhelmed when asked to teach a subiect in which they have little t discussants cecilia conrad pomona college w lee hansen university of wisconsin robert highsmith pace university

government effectiveness and regional variation in informal employment abstract this article analyses the role of government effectiveness in the determination of informal employment a theoretical model is developed in which local governance and worker skill level are assumed to influence the decision of the worker whether to seek employment in the formal or informal sectors the model is assessed empirically using data from brazil where almost half of the urban labour force is employed informally the empirical analysis supports the predictions of the model and suggests that the probability of a worker being employed informally is lower in regions with better governance and higher average education

cowards and heroes group loyalty in the american civil war what motivated men to risk death in the most horrific war in u s history when pay was low and irregular and military punishment strategies were weak in such a situation creating group loyalty by promoting social capital is of paramount importance and in the civil war was the cement of both armies we find that individual and company socioeconomic and demographic characteristics ideology and morale were important predictors of group loyalty in the union army company characteristics were more important than ideology or morale soldiers in companies that were more homogeneous in ethnicity occupation and age were less likely to shirk

taxation base in developing countries abstract informal sectors are larger in developing countries than in rich countries this is a result of higher fixed costs of entry into the formal economy in developing countries we show that raising barriers to entry is consistent with a deliberate government policy for raising tax revenue by generating market power and hence rents for the permitted entrants market entry fees foster the emergence of large taxpayers the rents can be readily confiscated by the government through entry fees and taxes on profits at a low administrative cost the relevance of the theory is assessed with a sample of 64 countries empirical analysis supports the results of the paper

effects of social norms and fractionalization on voting behaviour in japan this article uses prefecture level panel data from japan spanning the period 1989 2003 to examine the influence of social norms and fractionalization on voting behaviour the key findings obtained from analysis via the fixed effects estimation which controls for unobserved prefecture specific fixed effects are as follows 1 the voter turnout is higher in close knit communities indicating that social norms enhance voting 2 fractionalization from both economic and generational standpoints lowers the voter turnout and 3 a lack of social capital can lead to the distribution of votes being spread thinly among the competing parties

why do firms evade taxes the role of information sharing and financial sector outreach tax evasion is a widespread phenomenon across the globe and even an important factor in the ongoing sovereign debt crisis we show that firms in countries with better credit information sharing systems and higher branch penetration evade taxes to a lesser degree this effect is stronger for smaller firms firms in smaller cities and towns firms in industries relying more on external financing and firms in industries and countries with greater growth potential this effect is robust to instrumental variable analysis controlling for firm fixed effects in a smaller panel data set of countries and many other robustness tests

running for the exit community cohesion and bank panics bank panics attract scholarly interest because they reflect distrust of each bank that experiences a run as a result of diffusion of information rumors about such bank runs trigger additional runs elsewhere however the contagion of bank runs is highly selective for reasons that are unrelated to the financial strength of the individual banks this presents a puzzle that extant theories on institutions and reputations cannot fully explain to solve this puzzle we turn to the characteristics of the community in which the banks operate we develop theory on how communities with diverse affiliation structures and economic inequality have weaker community cohesion and communication making such communities less likely to experience widespread distrust and hence bank runs we test hypotheses on the effects of community ethnic diversity national origin diversity religious diversity and wealth inequality using data from the great bank panic of 1893 and we find strong community effects on bank runs these f

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

regulation of entry labor market institutions and the informal sector abstract this paper develops a two sector matching model that incorporates the main features of latin american labor markets it has an innovation in its matching structure that makes it more consistent with some key stylized facts of the informal sector in these countries the model is numerically solved using brazilian data and several policy simulations are performed reducing formal sector s entry cost significantly reduces the size of the informal sector and improves overall labor market performance increasing enforcement significantly reduces informality but has strong adverse effects on unemployment and welfare thus the results indicate that the tradeoff between lower informal employment and higher unemployment rates is not present when one looks at policies that aim at reducing the costs of being formal as opposed to policies that simply increase the costs of being informal

lyapunov stability in an evolutionary game theory model of the labour market in this paper the existence and stability of equilibria in an evolutionary game theory model of the labor market is studied by using the lyapunov method the model display multiple equilibria and it is shown that the nash equilibria of the static game are evolutionary stable equilibria in the game theory evolutionary set up in this vein a complete characterization of the dynamics of an evolutionary model of the labor market is provided

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

returns to physical capital in ethiopia comparative analysis of formal and informal firms summary this paper investigates returns to capital in the formal and informal sectors in ethiopia using parametric and semi parametric regression techniques results show that there is a higher annual median return to capital in the informal sector 52 140 than the formal sector 15 21 however informal firms might benefit from working formally as their capital stock gets larger marginal returns in the informal sector increase with firm size access to reliable markets market uncertainty and owners labor supply on the other hand marginal returns to capital and overall profitability decrease with capital stock contrary to the poverty trap hypothesis

teaching un sustainability university sustainability commitments and student experiences of introductory economics the three largest public universities in british columbia canada have signed the talloires declaration committing themselves to promoting sustainability and creating expectations that they will integrate sustainability across the curriculum in order to improve students environmental literacy and stewardship about 40 of north american university students take a mainstream introductory economics course few of these students take economics at more advanced levels as such introductory economics courses are an important vehicle for students to learn economic theory they have the potential to contribute to the knowledge that students can mobilize to foster sustainability interviews were held with 54 students who had recently completed an introductory level mainstream economics course at one of the three universities students reported that introductory economics courses place little emphasis on the environment and sustainability they recalled course content with normative connotations that are problematic from a sustainability perspective and they described how discussion of the limitations of mainstream theory was set aside student reports of the insights introductory economics offers into environmental problems imply that these courses are failing to substantively increase students understanding of sustainability and linkages between the environment and the economy findings suggest that current introductory economics curriculum undermines the universities sustainability commitments

firms operating under electricity constraints in developing countries many developing countries are unable to provide their industrial sectors with reliable electric power with the result that many enterprises must contend with an insufficient and unreliable supply of electricity because of these constraints enterprises often opt for self generation of electricity even though it is widely considered a second best solution this paper develops a theoretical model of investment behavior in remedial infrastructure in the presence of physical constraints it then illustrates the model s predictions using a large cross country sample of enterprises from the world bank enterprise survey database electricity intensive sectors in high outage countries are characterized by a significantly lower share of small firms

informality and profitability evidence from a new firm survey in ecuador this paper estimates the impact of informality on firm profits using a new firm level survey designed specifically for this study the survey was administered to about 1 200 firms with 50 employees or less in ecuador s two largest cities quito and guayaquil plus two main centers of economic activity near the northern and southern borders the paper s results confirm that the extent of firms compliance with a set of regulatory requirements is linked to the perceived costs and benefits of informality such as the probability of detection by the authorities and the likelihood of being fined nonetheless taking into account the non random placement of firms along the formality informality spectrum and controlling for a large set of firm owner and location characteristics the paper finds that more formal firms tend to be more profitable and have higher output per worker this impact operates inter alia through more formal firms ability to obtain improved access to credit and achieve higher sales by issuing receipts to clients