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Table of Contents
Front Cover
Contents
Foreword
Acknowledgments
About the Editors and Authors
Main Messages
Abbreviations
Chapter 1 Rethinking Informality in South Asia: An Overview of the Findings
Introduction
Conceptual Framework
South Asia's Informal Firms: Outsiders, Evaders, or Avoiders?
Likely Effect of Reforms on the Informal Sector: Productivity Impacts
Can Digital Platforms Address Demand Constraints on Informality?
Barriers to Skills and Capital Accumulation in the Informal Sector
Building Resilience: Offering Social Insurance in the Informal Sector
Conclusion
Notes
References
Chapter 2 Formal Sector Distortions, Entry Barriers, and the Informal Economy: A Quantitative Exploration
Introduction
Model
Stylized Facts
Conclusion
Annex 2: Calibration Strategy, Concrete Examples of Idiosyncratic Distortions and Entry Barriers, and Formal Characterization of the Equilibrium
Annex 2A: Calibration of Parameter Values in the Model
Annex 2B: Further Examples of Idiosyncratic Distortions and Entry Barriers
Annex 2C: Formal Definition of Firm-Level Outcomes and Equilibrium Conditions
Notes
References
Chapter 3 The Value Added Tax, Cascading Sales Tax, and Informality
Introduction
Stylized Facts on Informality
Theory and Model
Calibration and Estimation
Counterfactual Analysis
Conclusion
Annex 3A: The Downstream Index
Annex 3B: Calculating the Share of Formal Inputs and Output
Annex 3C: Background on Indian Tax Reform
Annex 3D: Model Solution
Annex 3E: A Granular Look at the Informal Sector
Annex 3F: The Simulated Method of Moments Estimator
Annex 3G: Moments and Cutoff Productivity
Notes
References
Chapter 4 Responses of Firms to Taxation and the Link to Informality: Evidence from India's GST
Introduction.
Tax Policy and Informality in South Asia and India
Data
Elasticity of Sales to the Tax Rate
Implications for Tax Policy in the Region
Notes
References
Chapter 5 Small Businesses and Online Sales in India
Introduction
Background: Online Retail in India
Data and Descriptive Statistics
Results
Conclusion
Notes
References
Chapter 6 What Is the Role of Socioemotional Skills in Supporting South Asia's Informal Sector Poor: Insights from Pakistan and Sri Lanka
Introduction
The (New) Role of Socioemotional Skills in the Labor Market
Insights from Pakistan and Sri Lanka
Enhancing Socioemotional Skills through Programs among the Informal Poor
Annex 6A: Correlation Coefficients between Variables, Pakistan LSS and Sri Lanka STEP
Annex 6B: Estimation of the Impacts of Socioemotional Skills
Notes
References
Chapter 7 Workers at Risk: Panel Data Evidence on the COVID-19 Labor Market Crisis in India
Introduction
Background: Onset of COVID-19 and the Government Response
Data
Descriptive Analysis
Empirical Specification: Event Study Analysis
Results
Annex 7A: Figures and Tables
Notes
References
Chapter 8 Social Insurance among Informal Workers in South Asia
Introduction
Extending Coverage through Noncontributory Social Insurance
Expanding Social Insurance to Higher-Income Informal Workers
Policy Implications
Annex 8A: Social Insurance Schemes in South Asia
Annex 8B: The Informal Sector in South Asia: Bangladesh
Annex 8C: Producing Projections on Social Pensions
Annex 8D: Methodology of the Global Findex Analysis
Annex 8E: Cobweb Analysis: Introducing a Contributory Pension Scheme
Annex 8F: Simplified Regimes in Latin America
Notes
References
Boxes
Box 1.1 Natural Firm Size in the Undistorted Economy: An Example.
Box 6.1 The Big Five Socioemotional Skills
Box 8.1 Experiences in Addressing Informal Sector Pension Coverage in Sri Lanka
Box 8.2 Noncontributory Pensions in South Asia
Box 8.3 Summary of the Three Scenarios
Figures
Figure 1.1 Share of Informal Employment in Total Nonagricultural Employment
Figure 1.2 Formal and Informal Sectors with Entry Costs and Size-Based Registration Rules
Figure 1.3 South Asian Firms Are Predominantly Small
Figure 1.4 Informal South Asian Firms Are Predominantly Microenterprises
Figure 1.5 Larger Firms Are More Likely to Perceive Benefits from Obtaining a Tax ID
Figure 1.6 Informal Firms Have Lower Output per Worker
Figure 1.7 Informal and Formal Workers, by Earnings Percentile, Bangladesh and Pakistan
Figure 1.8 The COVID-19 Lockdown Affected Informal Workers More
Figure 2.1 Formal and Informal Sector Firm-Size Distribution
Figure 2.2 Average Firm Size and Economic Development
Figure 2.3 Idiosyncratic Distortions and Entry Barriers
Figure 2.4 Model's Implications for Informal Employment Shares
Figure 2.5 TFP Gains from Reversing Informality
Figure 2.6 Informality under Regulation-Based Indicators of Entry Barriers
Figure 3.1 Informal Firms, by Share in Total Firms and in Total Output, West Bengal, 2015
Figure 3.2 Informal Firms Relative to the Average Formal Firm, by Revenue, West Bengal, 2015
Figure 3.3 Distribution of Output, Formal and Informal Firms, West Bengal, 2015
Figure 3.4 Trade Pattern, Formal and Informal Firms, West Bengal, 2015
Figure 3.5 Illustrative Analysis of the Formalization Choice
Figure 3.6 The Three Types of Informal Firms
Figure 3.7 Revenue Growth after VAT Adoption, by Size
Figure 3.8 Tax Revenue and the Tax Rate: The VAT versus the Sales Tax
Figure 3A.1 The Share of Informal Firms and the Downstream Index, 2015.
Figure 3B.1 Measuring Transactions between the Formal and Informal Sectors
Figure 3C.1 Tax Rates before and after the VAT Reform, by State and Union Territory
Figure 3C.2 Tax Registration Threshold before and after the VAT Reform, by State and Union Territory
Figure 3E.1 Informal Firms and Informal Employment, by State and Union Territory
Figure 3E.2 Share of Informal Firms, by Number of Employees in All Firms, 2015
Figure 3E.3 The Formal and Informal Firm Profile in Manufacturing, 2015
Figure 3E.4 Informal and Formal Firms, by Revenue and Number of Employees, 2015
Figure 3E.5 Distribution of Informal Firms, by Revenue, 2015
Figure 3E.6 Distribution of Informal Firms, by Age, 2015
Figure 3E.7 A Comparison of Practices between Formal and Informal Firms, 2015
Figure 3E.8 The Distribution of Value Added per Worker, 2015
Figure 4.1 Distribution of Statutory Tax Rates, July 2017 and July 2020
Figure 4.2 Rate Changes at the Subheading Level, July 2017 to March 2019
Figure 4.3 Survey Data on Firms: Share of Formality, by Sector
Figure 4.4 Impact of Tax Rate Cuts on Effective Tax Rates and Sales
Figure 4.5 Correlation between Informality and Elasticities, by Sector
Figure 5.1 Firm Characteristics
Figure 5.2 Trends in the Share of Each Product Category in Total Sales
Figure 5.3 Distribution of Sales and Purchases, by State and Union Territory
Figure 5.4 Duration of Firms on the e-Commerce Platform
Figure 5.5 Sales Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.6 Revenue Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.7 Product Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.8 Sales Stability
Figure 5.9 Postal Codes with Sales, Formal and Informal Firms, First Three Years on the Platform.
Figure 6.1 Socioemotional Skills Differ Based on Educational Attainment
Figure 6.2 Correlation: Socioemotional Skills, Earnings, and Formality Status
Figure 6.3 Socioemotional Skills of Formal and Informal Workers Differ
Figure 6.4 Socioemotional Skills Differ between the Top and Bottom Wealth Quintiles
Figure 6.5 Heckman Selection Model, Pakistan
Figure 6.6 Mincerian Regression to Measure Returns, Sri Lanka
Figure 6.7 Socioemotional Skills Differ between Men and Women
Figure 6.8 Socioemotional Skills Vary by Sector of Employment
Figure 6A.1 Correlation Coefficients, Pakistan
Figure 6A.2 Correlation Coefficients, Sri Lanka
Figure 7.1 Labor Market Churning Before and During the Lockdown
Figure 7.2 Cross-Sectional Breakdown of the Labor Market
Figure 7.3 Index of Per Capita Household Income, by Worker Group, February 2020
Figure 7.4 Pandemic Impact on Employment Probability: Difference in Differences Estimates
Figure 7.5 Pandemic Impact on Per Capita Household Income: Difference in Differences Estimates
Figure 7.6 Index of Average Per Capita Household Consumption, by Worker Group
Figure 7.7 Pandemic Impact on Per Capita Household Consumption: Difference in Differences Estimates
Figure 7A.1 Household Per Capita Income and Consumption, by Transition Category
Figure 7A.2 Consumer Price Index: Inflation in Food and Nonfood Prices
Figure 8.1 The Labor Force without Pensions, by World Region, 2006-16
Figure B8.1.1 Pension Scheme Coverage, Working-Age Population Ages 18-60, 1996-2016
Figure 8.2 Informal Employment, by Broad Economic Sector, Bangladesh, 2016-17
Figure 8.3 Noncontributory Pension Programs: Age of Eligibility and Coverage
Figure 8.4 Monthly Benefits
Figure 8.5 Expenditures on Noncontributory Pensions.
Figure 8.6 Pension Coverage and Projected Share of Population Ages 60+, 2020-50.
Contents
Foreword
Acknowledgments
About the Editors and Authors
Main Messages
Abbreviations
Chapter 1 Rethinking Informality in South Asia: An Overview of the Findings
Introduction
Conceptual Framework
South Asia's Informal Firms: Outsiders, Evaders, or Avoiders?
Likely Effect of Reforms on the Informal Sector: Productivity Impacts
Can Digital Platforms Address Demand Constraints on Informality?
Barriers to Skills and Capital Accumulation in the Informal Sector
Building Resilience: Offering Social Insurance in the Informal Sector
Conclusion
Notes
References
Chapter 2 Formal Sector Distortions, Entry Barriers, and the Informal Economy: A Quantitative Exploration
Introduction
Model
Stylized Facts
Conclusion
Annex 2: Calibration Strategy, Concrete Examples of Idiosyncratic Distortions and Entry Barriers, and Formal Characterization of the Equilibrium
Annex 2A: Calibration of Parameter Values in the Model
Annex 2B: Further Examples of Idiosyncratic Distortions and Entry Barriers
Annex 2C: Formal Definition of Firm-Level Outcomes and Equilibrium Conditions
Notes
References
Chapter 3 The Value Added Tax, Cascading Sales Tax, and Informality
Introduction
Stylized Facts on Informality
Theory and Model
Calibration and Estimation
Counterfactual Analysis
Conclusion
Annex 3A: The Downstream Index
Annex 3B: Calculating the Share of Formal Inputs and Output
Annex 3C: Background on Indian Tax Reform
Annex 3D: Model Solution
Annex 3E: A Granular Look at the Informal Sector
Annex 3F: The Simulated Method of Moments Estimator
Annex 3G: Moments and Cutoff Productivity
Notes
References
Chapter 4 Responses of Firms to Taxation and the Link to Informality: Evidence from India's GST
Introduction.
Tax Policy and Informality in South Asia and India
Data
Elasticity of Sales to the Tax Rate
Implications for Tax Policy in the Region
Notes
References
Chapter 5 Small Businesses and Online Sales in India
Introduction
Background: Online Retail in India
Data and Descriptive Statistics
Results
Conclusion
Notes
References
Chapter 6 What Is the Role of Socioemotional Skills in Supporting South Asia's Informal Sector Poor: Insights from Pakistan and Sri Lanka
Introduction
The (New) Role of Socioemotional Skills in the Labor Market
Insights from Pakistan and Sri Lanka
Enhancing Socioemotional Skills through Programs among the Informal Poor
Annex 6A: Correlation Coefficients between Variables, Pakistan LSS and Sri Lanka STEP
Annex 6B: Estimation of the Impacts of Socioemotional Skills
Notes
References
Chapter 7 Workers at Risk: Panel Data Evidence on the COVID-19 Labor Market Crisis in India
Introduction
Background: Onset of COVID-19 and the Government Response
Data
Descriptive Analysis
Empirical Specification: Event Study Analysis
Results
Annex 7A: Figures and Tables
Notes
References
Chapter 8 Social Insurance among Informal Workers in South Asia
Introduction
Extending Coverage through Noncontributory Social Insurance
Expanding Social Insurance to Higher-Income Informal Workers
Policy Implications
Annex 8A: Social Insurance Schemes in South Asia
Annex 8B: The Informal Sector in South Asia: Bangladesh
Annex 8C: Producing Projections on Social Pensions
Annex 8D: Methodology of the Global Findex Analysis
Annex 8E: Cobweb Analysis: Introducing a Contributory Pension Scheme
Annex 8F: Simplified Regimes in Latin America
Notes
References
Boxes
Box 1.1 Natural Firm Size in the Undistorted Economy: An Example.
Box 6.1 The Big Five Socioemotional Skills
Box 8.1 Experiences in Addressing Informal Sector Pension Coverage in Sri Lanka
Box 8.2 Noncontributory Pensions in South Asia
Box 8.3 Summary of the Three Scenarios
Figures
Figure 1.1 Share of Informal Employment in Total Nonagricultural Employment
Figure 1.2 Formal and Informal Sectors with Entry Costs and Size-Based Registration Rules
Figure 1.3 South Asian Firms Are Predominantly Small
Figure 1.4 Informal South Asian Firms Are Predominantly Microenterprises
Figure 1.5 Larger Firms Are More Likely to Perceive Benefits from Obtaining a Tax ID
Figure 1.6 Informal Firms Have Lower Output per Worker
Figure 1.7 Informal and Formal Workers, by Earnings Percentile, Bangladesh and Pakistan
Figure 1.8 The COVID-19 Lockdown Affected Informal Workers More
Figure 2.1 Formal and Informal Sector Firm-Size Distribution
Figure 2.2 Average Firm Size and Economic Development
Figure 2.3 Idiosyncratic Distortions and Entry Barriers
Figure 2.4 Model's Implications for Informal Employment Shares
Figure 2.5 TFP Gains from Reversing Informality
Figure 2.6 Informality under Regulation-Based Indicators of Entry Barriers
Figure 3.1 Informal Firms, by Share in Total Firms and in Total Output, West Bengal, 2015
Figure 3.2 Informal Firms Relative to the Average Formal Firm, by Revenue, West Bengal, 2015
Figure 3.3 Distribution of Output, Formal and Informal Firms, West Bengal, 2015
Figure 3.4 Trade Pattern, Formal and Informal Firms, West Bengal, 2015
Figure 3.5 Illustrative Analysis of the Formalization Choice
Figure 3.6 The Three Types of Informal Firms
Figure 3.7 Revenue Growth after VAT Adoption, by Size
Figure 3.8 Tax Revenue and the Tax Rate: The VAT versus the Sales Tax
Figure 3A.1 The Share of Informal Firms and the Downstream Index, 2015.
Figure 3B.1 Measuring Transactions between the Formal and Informal Sectors
Figure 3C.1 Tax Rates before and after the VAT Reform, by State and Union Territory
Figure 3C.2 Tax Registration Threshold before and after the VAT Reform, by State and Union Territory
Figure 3E.1 Informal Firms and Informal Employment, by State and Union Territory
Figure 3E.2 Share of Informal Firms, by Number of Employees in All Firms, 2015
Figure 3E.3 The Formal and Informal Firm Profile in Manufacturing, 2015
Figure 3E.4 Informal and Formal Firms, by Revenue and Number of Employees, 2015
Figure 3E.5 Distribution of Informal Firms, by Revenue, 2015
Figure 3E.6 Distribution of Informal Firms, by Age, 2015
Figure 3E.7 A Comparison of Practices between Formal and Informal Firms, 2015
Figure 3E.8 The Distribution of Value Added per Worker, 2015
Figure 4.1 Distribution of Statutory Tax Rates, July 2017 and July 2020
Figure 4.2 Rate Changes at the Subheading Level, July 2017 to March 2019
Figure 4.3 Survey Data on Firms: Share of Formality, by Sector
Figure 4.4 Impact of Tax Rate Cuts on Effective Tax Rates and Sales
Figure 4.5 Correlation between Informality and Elasticities, by Sector
Figure 5.1 Firm Characteristics
Figure 5.2 Trends in the Share of Each Product Category in Total Sales
Figure 5.3 Distribution of Sales and Purchases, by State and Union Territory
Figure 5.4 Duration of Firms on the e-Commerce Platform
Figure 5.5 Sales Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.6 Revenue Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.7 Product Statistics, Formal and Informal Firms, First Three Years on the Platform
Figure 5.8 Sales Stability
Figure 5.9 Postal Codes with Sales, Formal and Informal Firms, First Three Years on the Platform.
Figure 6.1 Socioemotional Skills Differ Based on Educational Attainment
Figure 6.2 Correlation: Socioemotional Skills, Earnings, and Formality Status
Figure 6.3 Socioemotional Skills of Formal and Informal Workers Differ
Figure 6.4 Socioemotional Skills Differ between the Top and Bottom Wealth Quintiles
Figure 6.5 Heckman Selection Model, Pakistan
Figure 6.6 Mincerian Regression to Measure Returns, Sri Lanka
Figure 6.7 Socioemotional Skills Differ between Men and Women
Figure 6.8 Socioemotional Skills Vary by Sector of Employment
Figure 6A.1 Correlation Coefficients, Pakistan
Figure 6A.2 Correlation Coefficients, Sri Lanka
Figure 7.1 Labor Market Churning Before and During the Lockdown
Figure 7.2 Cross-Sectional Breakdown of the Labor Market
Figure 7.3 Index of Per Capita Household Income, by Worker Group, February 2020
Figure 7.4 Pandemic Impact on Employment Probability: Difference in Differences Estimates
Figure 7.5 Pandemic Impact on Per Capita Household Income: Difference in Differences Estimates
Figure 7.6 Index of Average Per Capita Household Consumption, by Worker Group
Figure 7.7 Pandemic Impact on Per Capita Household Consumption: Difference in Differences Estimates
Figure 7A.1 Household Per Capita Income and Consumption, by Transition Category
Figure 7A.2 Consumer Price Index: Inflation in Food and Nonfood Prices
Figure 8.1 The Labor Force without Pensions, by World Region, 2006-16
Figure B8.1.1 Pension Scheme Coverage, Working-Age Population Ages 18-60, 1996-2016
Figure 8.2 Informal Employment, by Broad Economic Sector, Bangladesh, 2016-17
Figure 8.3 Noncontributory Pension Programs: Age of Eligibility and Coverage
Figure 8.4 Monthly Benefits
Figure 8.5 Expenditures on Noncontributory Pensions.
Figure 8.6 Pension Coverage and Projected Share of Population Ages 60+, 2020-50.