WP 12 - Politico-economic institutions and the informal sector in Albania

When formal institutions are unfavorable for the development of a free market economy, one reaction in many countries is a spontaneous development of informal economies. This study analyzes the conditions for the informal sector to emerge in a transition country, to wit, Albania. The consequences of these conditions are reflected in the various appearances of the informal sector in this country, only two of which are analyzed in this paper. These are the occurrence of financial pyramid schemes and street vending. The analyses are based on the existing scarce evidence with respect to both aspects of the informal sector in Albania. These two examples provide evidence of the importance of the informal sector in a country in transition. This study concludes that overall, the negative implications dominate the positive ones, and argues that the informal sector should be formalized. Finally, it recognizes that this formalization can only be done in an environment with the relevant and efficient institutional framework and enforcement mechanisms.

WP 8 - Tax vasion in transition: Outcome of an institutional clash? -Testing Feige's conjecture

A field survey of households was conducted in Tirana, Albania in 2000. A response rate of 89.3% yielded 1.340 valid questionnaires, allowing us to test Feige's (1997) conjecture that more tax evasion will be observed, when formal and informal institutions clash. Respondents' attitudes towards formal and informal institutions were obtained by applying factor analysis to the responses to a series of attitudinal questions. The results of the analysis support Feige's conjecture. An important implication is that when studying tax evasion one should take country specific institutions (and their interaction) into account. JEL codes: H26, O5, O17 Key Words: tax evasion, transition, formal and informal institutions

Formation of social capital in Central and Eastern Europe: Understanding the gap vis-à-vis developed countries

Recent Eurobarometer survey data are used to document and explain the stock of social capital in 27 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption appear particularly important.http://deepblue.lib.umich.edu/bitstream/2027.42/40152/3/wp766.pd

Mind the Gap! Social Capital, East and West

Recent Eurobarometer survey data are used to document and explain the stock of social capital in 28 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption in post-communist countries appear particularly important. With the enlargement of the European Union, the gap in social capital should gradually disappear as the new member states catch up (economically and institutionally) with the old ones.

WP 32 - Tax evasive behaviour and gender in a transition country

In this paper, we provide a structural explanation of gender difference with respect to tax evasion. A unique data set, collected from a field survey of households in Albania, allows us to test and explore the established fact, in a transition country. The results show that women tend to evade taxes less than men, even after controlling for socio-economic and demographic characteristics (e.g., age, family status, education, income). Starting from neo-institutional theory, the paper analyzes the explanatory power of this theory where it concerns the differences in men’s and women’s tax behavior. Acknowledging the fact that gender differences in economic behavior are generally explained either as biological or by social/psychological role theory, this paper also discusses possible explanations as suggested in feminist economic research. Using the data available, some main hypothesis are articulated, tested and evaluated.

Formation of social capital in Central and Eastern Europe: Understanding the gap vis-à-vis developed countries

Recent Eurobarometer survey data are used to document and explain the stock of social capital in 27 European countries. Social capital in Central and Eastern Europe – measured by civic participation and access to social networks – lags behind that in Western European countries. Using regression analysis of determinants of individual stock of social capital, we find that this gap persists when we account for individual characteristics and endowments of respondents but disappears completely after we control for aggregate measures of economic development and quality of institutions. Informal institutions such as prevalence of corruption appear particularly important.social capital, institutions, capitalism, transition

Albanian Political-Economics: Albanian Political-Economics: Consequences of a Clan Culture

We study the politico-economic interaction in a country in transition from a communist regime to a democratic, free market system, to wit, Albania. It is argued that the politico-economic system there is characterized by the existence of clans. Both the communists and the first democratically chosen government applied policies that favored specific clans. Moreover, a popularity function estimation shows that voters related to different clans react in a distinct way to party policies.Clans, Albania, popularity functions, government policies

WP 11 - Tax evasion and the source of income: An experimental study in Albania and the Netherlands

A series of experiments among different social groups in both Albania and the Netherlands give the opportunity to compare behavioral patterns related to tax evasion. Aside from the decision whether or not to evade taxes, subjects have to choose a source of income, where one type enables subsequent tax evasion. The results allow us to conclude that subjects take the possibility of evasion into account when deciding on the source of income. In addition, we argue that the distinct levels of tax evasion outside of the laboratory in the two countries are not attributable to different tax attitudes or cultures, but to different tax institutions and the way individuals have learned to deal with them. We attribute tax evasion in Albania to inadequate tax collecting institutions, while the audit probability plays an important role in the Netherlands. JEL codes: C91, H26, O17, O57 Key words: Tax evasion, Cross-country studies, Experiments

Information Networks and Worker Recruitment

This paper studies experimentally how the existence of social information networks affects the ways in which firms recruit new personnel. Through such networks firms learn about prospective employees' performance in previous jobs. Assuming individualistic preferences social networks are predicted not to affect overall labor market behavior, while with social preferences the prediction is that when bilaterally negotiated: (i) wages will be higher and (ii) that workers in jobs with incomplete contracts will respond with higher effort. Our experimental results are consistent with the social preferences view, both for the case of excess demand and excess supply of labor. In particular, the presence of information networks leads to more efficient allocations.Labor Markets, Information Networks, Worker Recruitment, Indirect reciprocity, Experiments

Albanian political-economics: Consequences of a clan culture

We study the politico-economic interaction in a country in transition from a communist regime to a democratic, free market system, to wit, Albania. It is argued that the politicoeconomic system there is characterized by the existence of clans. Both the communists and the first democratically chosen government applied policies that favored specific clans. Moreover, a popularity function estimation shows that voters related to different clans react in a distinct way to party policies