Paz, Lourenco (2012): The effect of trade liberalization on payroll tax evasion and labor informality.
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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.
|Item Type:||MPRA Paper|
|Original Title:||The effect of trade liberalization on payroll tax evasion and labor informality|
|Keywords:||informal labor markets; trade liberalization; payroll tax evasion|
|Subjects:||F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance
|Depositing User:||Lourenco Paz|
|Date Deposited:||19. Jun 2012 01:21|
|Last Modified:||14. Feb 2013 13:54|
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Available Versions of this Item
The effect of trade liberalization on payroll tax evasion and labor informality. (deposited 19. Jun 2012 01:21)
- The Impacts of Trade Liberalization on Informal Labor Markets.�. (deposited 10. Mar 2013 17:04)
- The Impacts of Trade Liberalization on Informal Labor Markets: A Theoretical and Empirical Evaluation of the Brazilian Case. (deposited 10. Mar 2013 16:58)