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The Elasticity of Formal Work in African Countries

Author

Listed:
  • McKay Andy
  • Pirttilä Jukka
  • Schimanski Caroline

    (Faculty of Management, University of Tampere)

Abstract

A key policy problem in most developing countries is the size of the informal sector and its persistence over time. At the same time, these countries also need to increase their tax take. However, this may slow down the formalization of the economy. Evidence on the wages and characteristics of jobs in different sectors and on the impact of tax changes on the size of the informal sector in developing countries is, however, very limited. This paper therefore estimates the tax responsiveness of the extensive margin of formality, i.e. the propensity to participate in formal work as opposed to working as an informal worker,for four Sub-Saharan African countries. Using repeated cross-sections of household data and applying grouping estimator techniques, this paper finds only very small or statistically insignificant effects of taxes on the extent of formal work.

Suggested Citation

  • McKay Andy & Pirttilä Jukka & Schimanski Caroline, 2018. "The Elasticity of Formal Work in African Countries," Working Papers 1820, University of Tampere, School of Management, Economics.
  • Handle: RePEc:tam:wpaper:1820
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    File URL: http://urn.fi/URN:ISBN:978-952-03-0770-7
    File Function: First version, 2018
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    developing countries; Sub-Saharan Africa; taxation; labour supply; informality;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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