The Anatomy of Behavioral Responses to Social Assistance when Informal Employment is High

The disincentive effects of social assistance programs on registered (or formal) employment are a first order policy concern in developing and middle income countries. Means tests determine eligibility with respect to some income threshold, and governments can only verify earnings from registered employment. The loss of benefit at some level of formal earnings is an implicit tax – a notch – that results in a strong disincentive for formal employment, and there is extensive evidence on its effects. We study an income-tested program in Uruguay and extend this literature by developing an anatomy of the behavioral responses to this program and by establishing its welfare implications in full. Our identification strategy is based on a sharp discontinuity in the program’s eligibility rule. We rely on information on the universe of applicants to the program for the period 2004-2012 (about 400,000 individuals) from the program’s records, from administrative data on registered employment from the social security administration, and from a complementary follow-up survey with information on informal work. We construct the anatomy of the program’s effects along four dimensions. First, we establish that, as predicted by the theory, beneficiaries respond to the program’s incentives by reducing their levels of registered employment by about 8 percentage points. Second, we find substantial heterogeneity in these effects: the program induces a larger reduction of formal employment for individuals with a medium probability to be a registered employee, suggesting some form of segmentation – those with a low propensity to work formally do not respond to the financial incentives of the program, probably because they have limited opportunities in the labor market to begin with. Third, the follow-up survey allows us to establish that the fall in registered employment is due to a larger extent (about two thirds) to an increase in unregistered employment, and to a lesser extent (about one third) to a shift towards non-employment. Fourth, we find an elasticity of participation in registered employment of about 1.7. These results imply a deadweight loss from the behavioral responses to the program of about 3.2% of total registered labor incomeCentro de Estudios Distributivos, Laborales y Sociales (CEDLAS

Brecha Urbano - Rural de Ingresos Laborales en Uruguay para el Año 2006: Una Descomposición por Cuantiles

El presente trabajo se concentra en estudiar las diferencias de las distribuciones de ingresos laborales horarios entre las regiones urbanas y rurales en Uruguay para el año 2006. Para ello, se aplica el procedimiento elaborado por Machado y Mata (2004) y la extensión propuesta por Autor, Katz y Kearney (2005) para la construcción de las distribuciones contrafactuales y se implementa una versión de cuantiles de la metodología de Juhn, Murphy y Pierce (1993) para descomponer la brecha de ingresos laborales. Se corrobora que ésta es positiva y creciente en los cuantiles de la distribución de ingresos laborales. Se observa que la principal fuente que da cuenta de la brecha es el diferencial en la dotación de características en favor de los trabajadores de las regiones urbanas y su efecto es creciente a lo largo de toda la distribución. El efecto parámetros es negativo (aunque decreciente en valor absoluto) en la mayor parte de la distribución lo que estaría indicando que las diferencias en las remuneraciones a individuos de iguales características favorecen a trabajadores de las regiones rurales, ejerciendo así una suerte de “efecto compensador”. Sin embargo, como era de esperarse en la parte alta de la distribución de ingresos laborales el efecto parámetros es positivo, señalando que ante igual características aquellos trabajadores mejor posicionados en la distribución de ingresos son mejor remunerados por el mercado si se encuentran en las regiones urbanas.

Work and tax evasion incentive effects of social insurance programs : Evidence from an employment-based benefit extension

This article studies how social insurance programs shape individual’s incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the prereform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners’ jobs did not provide the couples’ children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS

Políticas de protección social, incentivos al trabajo y empleo formal : Evidencia para Uruguay a partir de una evaluación de experimentos de política

El principal objetivo es analizar cómo las las políticas de protección social afectan el comportamiento de los individuos en el mercado de trabajo. En particular, esta investigación explora cómo los individuos responden en términos de participación y empleo formal a un conjunto de políticas que expandieron recientemente el Sistema de Protección Social (SPS) en Uruguay. El Capitulo 1 presenta el marco analítico y describe los principales cambios de política que se desarrollaron en las últimas dos décadas en el Sistema de Protección Social de Uruguay. El Capítulo 2 analiza si el principal programa de transferencias de ingresos en Uruguay genera desincentivos en la oferta laboral y empelo formal. Las estimaciones sugieren que el programa no redujo la oferta laboral, aunque sí y de manera significativa la participación en empleos formales. El Capitulo 3 analiza empíricamente si las políticas de seguridad social pueden servir como un incentivo a que los individuos tomen empleos registrados o alteren sus reportes de ingresos a las autoridades fiscales, a partir de una expansión a gran escala en el sistema de beneficios sociales en Uruguay en 2008. Se encuentra que este cambio de política tuvo un impacto positivo en los niveles de empleo formal. También se encuentra que el nuevo beneficio incrementa la probabilidad de subdeclaración de ingresos salariales. El Capitulo 4, explora cómo las respuestas en el mercado de trabajo, afectan los costos del Estado. Finalmente, el Capítulo 5 concluye presentando una breve discusión acerca de las alternativas de expansión del Sistema de Protección Social en Uruguay, y en general en la región.Facultad de Ciencias Económica

Privaciones nutricionales : su vínculo con la pobreza y el ingreso monetario

This study explores empirical differences in poverty analysis under two distinct normative approaches: income poverty and Amartya Sen’s capability approach, focusing on nutritional achievement as the main dimension to measure poverty in the latter. The analysis focuses on the association between income poverty and individual deprivation in terms of child malnutrition for those attending the first grade at public institutions in Uruguay. The results from this study will provide evidence on the extent to which the measurement of poverty using monetary methods may approximate other dimensions of human well-being. In addition, this document also analyses the determinants of nutritional achievement for children. To address this last issue, the analysis estimates a production function for nutritional achievements, which allows exploring differences in individual characteristics; and also sheds light on the way in which household income is transformed into nutritional achievements for Uruguayan children. The data for the empirical estimation is drawn from the survey "El estado nutricional de los niños y las políticas alimentarias", carried out by the Instituto de Economía de la Universidad de la República (IECON) and supported by CSIC, PNUD y UNICEF, which was directed at households with young children who were attending the first grade at public schools in Uruguay during 2004. The results confirm the relevance of income as a path to well-being. However, the evidence indicates that classifying households as extreme poor according to a monetary definition is not sufficient to approximate their nutritional deprivation. In addition, the findings suggest that nutritional outcomes for children are dependent on a set of individual, household and community factors, which also influence the transformational potential of household monetary resources. Among the factors which stand out are: the level of mother’s health –especially their nutritional performance and reproductive history–, children’s health, educational level of the household’s members and access to a set of public goods.Poverty measure, Sen’s capability approach, child malnutrition, Uruguay

Policy implications of suboptimal choice: theory and evidence: misperceptions about tax audits

For some entities, such as self-employed individuals reporting income taxes or firms reporting value-added taxes, the optimal evasion rate depends substantially on audit features like audit probabilities and penalty rates (Allingham and Sandmo 1972). Whereas it is easy for firms to find other important information such as inflation rates or exchange rates, it is difficult to find information about the probability of being audited and penalty rates. Indeed, Bérgolo et al. (2017) show evidence that firms have large misperceptions about these audit features.1 In this paper, we expand their analysis to explore the sources of these misperceptions.Fil: Bérgolo, Marcelo. Universidad de la República; UruguayFil: Ceni, Rodrigo. Universidad de la República; UruguayFil: Cruces, Guillermo Antonio. Universidad Nacional de La Plata. Facultad de Ciencias Económicas. Departamento de Ciencias Económicas. Centro de Estudios Distributivos Laborales y Sociales; Argentina. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - La Plata; ArgentinaFil: Giaccobasso, Matias. University of California at Los Angeles; Estados UnidosFil: Perez Truglia, Ricardo. University of California at Los Angeles; Estados Unido

Impacto distributivo de las transferencias públicas en la década de 2000: la experiencia de los países del Cono Sur

En la década de 2000 la desigualdad del ingreso en América Latina se ha reducido. Este estudio aplica una metodología de descomposición no-paramétrica para evaluar la importancia de las fuentes de ingreso de los hogares, en particular el aporte de las transferencias públicas, sobre los cambios en la desigualdad de ingresos en cuatro países de América Latina: Argentina, Brasil, Chile y Uruguay. Los resultados del trabajo sugieren que los ingresos no laborales tuvieron un aporte significativo sobre los cambios en la desigualdad en los 2000 y que este impacto fue explicado principalmente por el efecto igualador que tuvieron las fuentes públicas en los cuatro países analizados. La dinámica de los cambios en esta fuente de ingreso y su impacto sobre la desigualdad estuvo fuertemente asociada a la implementación o expansión de programas de transferencia contributivos y no contributivos en la década de 2000. En los cuatro países, se encontró evidencias de que los principales factores que explicaron este efecto fueron tanto el incremento de la cobertura de los programas como la magnitud del beneficio.Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS

Work and tax evasion incentive effects of social insurance programs : Evidence from an employment-based benefit extension

This article studies how social insurance programs shape individual’s incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the prereform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners’ jobs did not provide the couples’ children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS

The Anatomy of Behavioral Responses to Social Assistance when Informal Employment is High

The disincentive effects of social assistance programs on registered (or formal) employment are a first order policy concern in developing and middle income countries. Means tests determine eligibility with respect to some income threshold, and governments can only verify earnings from registered employment. The loss of benefit at some level of formal earnings is an implicit tax – a notch – that results in a strong disincentive for formal employment, and there is extensive evidence on its effects. We study an income-tested program in Uruguay and extend this literature by developing an anatomy of the behavioral responses to this program and by establishing its welfare implications in full. Our identification strategy is based on a sharp discontinuity in the program’s eligibility rule. We rely on information on the universe of applicants to the program for the period 2004-2012 (about 400,000 individuals) from the program’s records, from administrative data on registered employment from the social security administration, and from a complementary follow-up survey with information on informal work. We construct the anatomy of the program’s effects along four dimensions. First, we establish that, as predicted by the theory, beneficiaries respond to the program’s incentives by reducing their levels of registered employment by about 8 percentage points. Second, we find substantial heterogeneity in these effects: the program induces a larger reduction of formal employment for individuals with a medium probability to be a registered employee, suggesting some form of segmentation – those with a low propensity to work formally do not respond to the financial incentives of the program, probably because they have limited opportunities in the labor market to begin with. Third, the follow-up survey allows us to establish that the fall in registered employment is due to a larger extent (about two thirds) to an increase in unregistered employment, and to a lesser extent (about one third) to a shift towards non-employment. Fourth, we find an elasticity of participation in registered employment of about 1.7. These results imply a deadweight loss from the behavioral responses to the program of about 3.2% of total registered labor incomeCentro de Estudios Distributivos, Laborales y Sociales (CEDLAS

Explorando la brecha de ingresos laborales urbano-rural en Uruguay: una descomposicion de regresion por cuantiles

This paper analyzes the differences in real hourly labor income (RHLI) distributions between urban and rural workers for Uruguay in 2006. A quantile regression decomposition technique is applied in order to examine the urban-rural gap across the entire RHLI distribution. The urban-rural gap was primarily explained by the differences in the distribution of covariates along the entire distribution. Differences in distribution of returns favored the rural workers in most of the RHLI distribution although its contribution decreased across quantiles. The resulting gap in returns was most relevant for the worst off rural workers compared to the urban counterparts in both Montevideo and the rest of the urban centers.Este estudio analiza las diferencias en las distribuciones del ingreso real laboral horario (IRLH) entre trabajadores urbanos y rurales en Uruguay en 2008. Se aplica una técnica de descomposición por cuantiles para analizar la brecha urbano-rural a través de toda la distribución del IRLH. La brecha fue explicada principalmente por diferencias en la distribución de características. Las diferencias en la distribución de retornos favorecieron a los trabajadores rurales en la mayor parte de la distribución, aunque su contribución decreció con los cuantiles. Este diferencial fue más importante para los trabajadores rurales en peor situación comparados con los urbanos, tanto en Montevideo como en el resto de los centros urbanos.Centro de Estudios Distributivos, Laborales y Sociale