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"The Informal Economy: Measures, Causes, and Consequences provides a comprehensive account of the economics of informality through the lenses of various economic perspectives. Although informal economic activity is widespread all around the world, many issues around its nature and consequences remain largely under-explored or unresolved. Most importantly, the evidence presented in the existing literature on informality has failed to generate a consensus on the measurements, causes, and effects of the informal sector among researchers. Most, if not all, of the empirical results are inconclusive or dependent on the nature of the dataset used in the analysis. This book aims to address that gap by exploring different definitions and measures of the informal economy, including different perspectives, then subjecting these measures to a battery of empirical tests to examine the determinants and effects of informality. Through this analysis and an extensive review of the literature, the book explores many of the economic, political, and social factors of the informal economy including the relationship between informality and the tax burden, tax enforcement, and institutional quality. This key text makes for compulsive reading to scholars and students interested in the informal or shadow economy. Ceyhun Elgin is a Lecturer in Discipline and Director of the Master's Program in Economics at Columbia University, USA, and Professor of Economics at Boğaziçi University, Turkey."

AbstractIn this article, using both cross‐country data including 73 countries, as well as a novel data from a firm level survey covering 1000 firms in Turkey, I investigate the relationship between informality and corporate social responsibility (CSR). Using the firm‐level data, I ask whether corporate social responsibility scores (CSR) and its relationship with firm's expected performance and profitability are different for firms mainly operating in the formal and informal sector. Cross‐country data reveals a significant negative correlation between CSR and informal sector size. On the other hand, using the firm‐level data, I find that firms that tend to engage in informal economic activities have significantly lower CSR scores. Moreover, CSR scores and firms' expected performance are generally positively correlated and this correlation is much less (and even not significantly different from zero in some cases) for informal firms. I also find some evidence that the main reason behind these results might be that firms mainly operating in the informal sector are spending significantly less to R&D and advertising as the relationship between these variables and the firm's performance and profitability is less pronounced for these firms.

AbstractIn this paper, we investigate the relationship between the level of democracy and fiscal-policy response to the economic crisis induced by the COVID-19 pandemic. We use a novel cross-country panel dataset of fiscal-policy responses with time variation. Our results suggest that more democratic countries adopted substantially larger fiscal-policy packages (in % GDP), and the gap regarding the size of packages between more democratic and less democratic countries widened over time. Our analysis of the components of fiscal policy shows that democracies, in particular, provide larger packages that benefit the broad public. Furthermore, our system-equations estimations suggest that the relation of democracy level with the fiscal-policy response is established through democracy's relation with inclusive institutions, represented by the parliamentary system, and corruption.

ABSTRACTIn this paper we build an endogenous growth model in which the informal economy is subject to a cash‐in‐advance constraint along with physical capital accumulation and consumption. In this setting, we find that inflation generally adversely affects long‐run growth. However; this effect strongly interacts with the size of the informal economy. Specifically, the negative effect becomes milder (and can even be positive) under the presence of a large informal economy. Moreover, using an annual cross‐country panel data set of 161 countries over the period 1950‐2010 we also provide some empirical support for the mechanism of our theory.

In this study we investigate the empirical relationship between the size of
the informal sector (as percentage of official GDP), carbon dioxide and
sulfur dioxide emissions in Turkey by using annual data from 1950 to 2009 and
conducting a time-series analysis using cointegration techniques. This
analysis is crucial as pollution emissions may lead to unfavorable weather
conditions and potentially cause environmental impacts that may adversely
affect the global economy. The empirical analysis shows evidence towards the
existence of an inverted-U relationship between relative informal sector size
and environmental pollution indicators in the long-run. That is small and
large sizes of the shadow economy are associated with little environmental
pollution and medium levels of the size of the shadow economy are associated
with higher levels of environmental pollution. Moreover, using multivariate
cointegration techniques, we suggest and test an economic mechanism to
account for this observation. This also helps us to prescribe various policy
recommendations regarding pollution and energy use.

In this paper, we use results of a novel survey covering 1,000 firms from 16 different sectors of the Turkish economy along with a two‐sector dynamic general equilibrium model to measure the extent of informality in these sectors. Moreover, we also evaluate the effects of two different policy tools on informality, namely, income taxes and tax enforcement. Our results show that while both are effective policy tools in dealing with informality, tax enforcement is a relatively more efficient tool and tax becomes quite ineffective at lower levels of informality.

The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. However, this observation is not supported empirically for various economies. Based on the neoclassical tradition, the ratio of the marginal product of labor to real wages is generally defined as the Pigouvian exploitation rate. In this paper, the authors calculate this specific wage-productivity gap for the manufacturing sector in OECD economies and investigate its relation to the unemployment rate along with other variables such as government taxation, capital expansion, unionization, inflation. The authors find that the wage productivity gap gives a robust and significantly positive response to shocks to the unemployment rate and negative response to shocks to unionization.

The Walrasian theory of labor market equilibrium predicts that in the absence of any market frictions, workers earn a wage rate equal to their marginal productivity. In this paper, based on the neoclassical tradition, the authors define the ratio of the marginal product of labor to real wages as the Pigouvian exploitation rate and then construct a panel dataset of this specific wage-productivity gap for the manufacturing sector in OECD economies. Next, they investigate its relationship with the unemployment rate along with various other variables such as the government taxation, capital expansion, unionization, inflation. Their findings suggest that the wage-productivity gap gives a robust and significantly positive response to shocks to unemployment rate and a negative response to shocks to unionization.

AbstractIs fiscal federalism associated with economic policy responses and stimulus measures adopted by national and sub-national governments to mitigate the adverse economic effects of the COVID-19 pandemic? In this paper, we provide empirical evidence that it indeed is. Our results indicate that even after controlling for various relevant factors, countries with fiscally federal (decentralised) governments have adopted larger fiscal and macro-financial policy packages (as a percent of GDP). However, there are no significant differences in monetary-policy responses between centralised and decentralised governments. We also show that these results are robust to using different federalism measures, including different sets of control variables and different econometric specifications that include an instrumental variable estimation.