MONGOLIA'S INFORMAL SECTOR Appendix A: Micro-studies of Informality 32 drivers and passengers. (These fares are adjusted by the market periodically, in step with large and infrequent changes in the price of fuel. This price adjustment mechanism is a great example of a strong informal institution.) Every vehicle in Ulaanbaatar is a potential taxicab.

88. Taxicabs are subject to the _Informal Sector Income Tax Law,_ and are required to pay a flat tax of 1 ,100 togrogs per month in the case of Ulaanbaatar passenger vehicles, more if the vehicle is large or carries passengers outside of Ulaanbaatar city, less if the vehicle calls some place other than Ulaanbaatar home. The Mongolian authorities have relatively more success in collecting the tax from vehicles that travel outside of Ulaanbaatar, since papers can be verified at the _aimag_ border points. Within Ulaanbaatar, tax officials have the more difficult task of discerning those vehicles used primarily as taxicabs from those that are simply personal transportation. The Ulaanbaatar Tax Administration periodically cooperates with the Road Police, doing random checks of vehicles: those that appear to be carrying passengers are required to provide evidence that they have paid their taxes. Due to the high rate of moonlighting, only 37% of the taxicabs surveyed as part of this study said they are officially registered as taxicabs. Full-time taxicabs are somewhat more compliant. Among the subset that drive more than 45 hours per week, 74% are officially registered.

89. Taxicabs provide contrast to other forms of informal activity in several respects. First, driving a taxicab is very amenable to moonlighting, as discussed earlier. Second, the nature of competition is different: entry and exit are completely costless for anyone who owns a vehicle, and price competition only exists periodically when changes in the price of fuel spark changes in taxicab fares. Third, the return to driving a taxi represents a combined return to both labor and capital. These contrasts, and the apparent popularity of taxicab driving as an informal activity, motivated the survey of 308 taxicabs undertaken in February 1997. Some descriptive statistics from the survey are provided in Appendix B.

90. The rapid growth in the number of private vehicles in Ulaanbaatar has placed competitive pressure on the taxicab industry. Although the market-determined fares increase sharply each time the price of fuel is increased, the real return to driving a taxicab has been eroded by inflation and has fallen since 1993. Despite these competitive pressures, Ulaanbaatar's taxicab drivers, both part-time and full-time, make significant contributions to the local economy. The time that Ulaanbaatar's drivers spend operating taxicabs is equivalent to approximately 6,000 fulltime equivalent jobs. The value of that time is even more telling. On an annualized basis, Ulaanbaatar's taxicabs contribute more than 21 billion togrogs to value added at current (3/97) prices. This amounts to roughly 3% of GDP for the entire country for 1996, or 9% of the Ulaanbaatar economy, after adjusting for inflation. This fraction of GDP seems quite large given that it represents only taxicabs, most of whom are part-time moonlighters, and only in the city of Ulaanbaatar - it does not include the lucrative market for travel to the _aimags,_ trucks, buses, or any other informal activity.

# **Informal Freight Transport**

91. Informal participation in the trucking industry is arguably a direct result of reforms. During privatization many trucks were privatized directly to the drivers, sometimes with payment taking the form of an agreement to provide services for some period of time. The new owners suddenly had the freedom to seek out work on their own schedules, and the responsibilities of finding their own customers. (See Box 10.) 92. Relative to other transport sub-sectors, trucking is less dominated by informnals. The total number of registered trucks in Ulaanbaatar remains at roughly the level of 1991. However, the privatization of vehicles means that about 40% are now registered as personally owned, and 60% are registered as owned by organizations whereas in 1991 all were owned by organizations.'<sup>2</sup> For Mongolia as a whole, roughly half of the trucks are registered to individuals, rather than organizations. Currently there are nearly 27,000 trucks registered in Mongolia, of which 7,500 are in Ulaanbaatar.