Advanced Search
MyIDEAS: Login

The effect of trade liberalization on payroll tax evasion and labor informality

Contents:

Author Info

  • Paz, Lourenco

Abstract

Several developing countries that underwent trade liberalization experienced changes in the share of informal workers in manufacturing industries. This phenomenon deserves careful examination because informal jobs are not only generally viewed as low-quality and low-paying jobs, they also account for more than 30% of the workforce in some countries. In this paper, I develop a theoretical model of the impacts of trade liberalization on labor markets in which domestic and foreign import tariffs affect firms’ payroll tax compliance decisions, which in turn determine the types of jobs (i.e., formal or informal) created. The model is able to replicate several stylized facts such as some small firms hiring formal and informal workers and large firms hiring only formal workers. Moreover, it predicts that a decrease in domestic import tariffs decreases both the share of informal workers and the average formal wage, whereas a decrease in foreign (i.e., trading partner) import tariffs decreases the informality share but increases the average formal wage. The effect on the average informal wage is ambiguous.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/39545/
File Function: original version
Download Restriction: no

File URL: http://mpra.ub.uni-muenchen.de/44926/
File Function: revised version
Download Restriction: no

File URL: http://mpra.ub.uni-muenchen.de/44928/
File Function: revised version
Download Restriction: no

File URL: http://mpra.ub.uni-muenchen.de/45726/
File Function: revised version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39545.

as in new window
Length:
Date of creation: 07 May 2012
Date of revision:
Handle: RePEc:pra:mprapa:39545

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: informal labor markets; trade liberalization; payroll tax evasion;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  2. Neri, Marcelo Cortes, 2002. "Decent Work and the Informal Sector in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 461, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  3. Ronald B Davies & Lourenço S Paz, 2010. "Tariffs Versus VAT in the Presence of Heterogeneous Firms and an Informal Sector," Working Papers 201008, School Of Economics, University College Dublin.
  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  5. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  6. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  7. Helpman, Elhanan & Itskhoki, Oleg, 2009. "Labor Market Rigidities, Trade, and Unemployment," CEPR Discussion Papers 7502, C.E.P.R. Discussion Papers.
  8. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does regionalism affect trade liberalization towards non-members?," LSE Research Online Documents on Economics 19584, London School of Economics and Political Science, LSE Library.
  9. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "Trade, Wages and the Political Economy of Trade Protection: Evidence from the Colombian Trade Reforms," CEPR Discussion Papers 3877, C.E.P.R. Discussion Papers.
  10. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, vol. 18(3), pages 319-344.
  11. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World," IMF Working Papers 00/26, International Monetary Fund.
  12. Pinelopi K. Goldberg & Nina Pavcnik, 2003. "The Response of the Informal Sector to Trade Liberalization," NBER Working Papers 9443, National Bureau of Economic Research, Inc.
  13. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-34, December.
  14. James H. Stock & Mark W. Watson, 2008. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression," Econometrica, Econometric Society, vol. 76(1), pages 155-174, 01.
  15. Paz, Lourenco, 2012. "The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case," MPRA Paper 38858, University Library of Munich, Germany.
  16. Svetlana Demidova & Andrés Rodríguez-Clarez, 2011. "The Simple Analytics of the Melitz Model in a Small Open Economy," NBER Working Papers 17521, National Bureau of Economic Research, Inc.
  17. Christoph Schmidt & Klaus Zimmerman, 1990. "Work Characteristics, Firm Size and Wages," Working Papers 644, Princeton University, Department of Economics, Industrial Relations Section..
  18. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  19. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  20. Pratap, Sangeeta & Quintin, Erwan, 2006. "Are labor markets segmented in developing countries? A semiparametric approach," European Economic Review, Elsevier, vol. 50(7), pages 1817-1841, October.
  21. John Romalis, 2007. "NAFTA's and CUSFTA's Impact on International Trade," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 416-435, August.
  22. Victor Gomes & Roberto Goes Ellery Jr., 2007. "Exports, Productivity and Firms Size in Brazil," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 61(1), pages 33-48, August.
  23. Donald R. Davis & James Harrigan, 2007. "Good Jobs, Bad Jobs, and Trade Liberalization," NBER Working Papers 13139, National Bureau of Economic Research, Inc.
  24. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Wages, Unemployment and Inequality with Heterogeneous Firms and Workers," NBER Working Papers 14122, National Bureau of Economic Research, Inc.
  25. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
  26. Knud Jørgen Munk, 2006. "Tax-tariff reform with costs of tax administration," Economics Working Papers 2006-14, School of Economics and Management, University of Aarhus.
  27. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  28. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  29. Baybars Karacaovali, 2008. "Productivity Matters for Trade Policy: Theory and Evidence," Fordham Economics Discussion Paper Series dp2008-14, Fordham University, Department of Economics.
  30. Alessandro Nicita & Marcelo Olarreaga, 2007. "Trade, Production, and Protection Database, 1976--2004," World Bank Economic Review, World Bank Group, vol. 21(1), pages 165-171.
  31. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Paz, Lourenco, 2012. "The impacts of trade liberalization on informal labor markets: an evaluation of the Brazilian case," MPRA Paper 38858, University Library of Munich, Germany.
  2. Lourenco S. Paz, 2013. "Trade liberalization and inter-industry productivity spillovers: a dynamic spatial panel approach," Economics Bulletin, AccessEcon, vol. 33(3), pages 2379-2393.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:39545. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.