The Elasticity of Formal Work in African Countries
McKay, Andy; Pirttilä, Jukka; Schimanski, Caroline (2018)
Tampereen yliopisto
2018
Johtamiskorkeakoulu - Faculty of Management
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Julkaisun pysyvä osoite on
https://urn.fi/URN:ISBN:978-952-03-0770-7
https://urn.fi/URN:ISBN:978-952-03-0770-7
Tiivistelmä
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 di erent
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.
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 di erent
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.