Research

This paper studies the effect of prohibiting the use of cash for wage disbursements on labor markets in developing countries. We study a reform in Uruguay that mandated wage payments to be disbursed using only electronic methods. Using a difference-in-differences approach based on sector-level cash intensity prior to the reform, our results indicate that firms in high cash intensity sectors are significantly more likely to discontinue formal activities post-reform. Active firms show a slight reduction in the number of employees and an increase in reported wages. These results are driven by low productivity firms. Complementary results using survey data indicate an increase in informal employment and a decrease in collusive underreporting of earnings partially explain these results. Overall, results suggest that, while eliminating cash for wage payments enhances tax compliance among formal workers, it may also shift some economic activity into full informality, offsetting the revenue gains from improved payroll tax compliance.

This paper studies the effects of the privatization of the pension system on workers’ reported earnings, employment and retirement behavior, and income in old age. We analyze a reform to the pension system in Uruguay that transitioned from a pay-as-you-go system with defined benefits into a mixed system, in which a fraction of social security contributions is used to fund the pay-as-you-go system and the remaining fraction is allocated to individual retirement accounts. For identification, we leverage a cohort-based discontinuity in the introduction of the new mixed system with regression discontinuity analyses, using rich administrative and census data. We find significant labor supply responses to the privatization on multiple dimensions. First, workers in the system with private retirement accounts are significantly more likely to be employed in their fifties. This effect is driven partially by lower rates of early retirement, with effects concentrated among individuals of low wealth and those who have mild disabilities. Second, workers in the system with retirement accounts report significantly higher earnings early-on in their careers, and we find suggestive evidence that this is due to a reduction of tax evasion. Regarding income in old age, we find little differences on income and poverty rates across the two systems in early old age. However, two decades after the privatization the government gave workers the option to reverse back to the non-privatized system, and we find that a significant share chose to, especially among those who did not choose the most profitable retirement savings option and those with career profiles that favor defined benefits formulas. Overall, our evidence suggests that pension privatization can boost labor supply in old age and have the unexpected benefit of increasing tax compliance, but it can have detrimental effects on the pension income of some workers, which can partially explain some of the push to roll back privatizations in several countries over the last two decades.

In this paper, we study formal workers receiving part of their salary off the books, which we refer to as “payments under the table” (PUT). We conduct the first extensive survey among Brazilian formal workers to understand the extent and mechanics of this type of informality. Despite the widespread belief that third-party reported income exhibits very low evasion, we find that PUT are sizeable and proportionally larger for higher-income workers. Back-of-the-envelope calculations suggest that PUT generates revenue lost from income tax of around 6.8% of total revenues collected by the income tax. Moreover, we show that PUT affects the government budget significantly more than classic informality. Additionally, we use quasi-experimental variation to shed light on the underlying incentives of employers and employees to engage in collusive tax evasion. First, using the ceiling to the social security contributions in Brazil, we show bunching evidence suggesting that workers closer to retirement exhibit wage reporting patterns consistent with PUT. Bunchers are more likely to be managers and work in smaller firms. Bunchers are also more likely to own a firm that can be used to receive the PUT as a contractor of the firm where they are employed. Finally, we incorporate novel data on labor lawsuits related to PUT to induce variation in employers’ incentives to engage in collusive tax evasion. We find a large increase in reported wages for incumbent workers of firms that were sued for PUT, suggesting that employers learn about the risk associated with PUT. 

We study a reform to the workers’ compensation system in Argentina that, after a workplace accident, mandated workers to go through a government medical commission that determines the degree of disability, whether the injury happened in the workplace, and the corresponding compensation, before additional legal actions can be taken. Leveraging the staggered implementation of the reform across provinces, we find that the reform substantially reduced workplace lawsuits with no effects on reported accidents. Employment increased by more than 5% one year after the reform in highly exposed industries, with no effects on average earnings or the number of active firms. 

This paper studies how changes in payroll tax rates affect labor markets with widespread informality. For identification, I leverage time-varying sector-by-area and across-areas changes in payroll tax rates in Argentina with difference-in-differences analyses. Four main findings emerge. First, changes in the payroll tax rate affect informality in the expected directions: tax cuts reduce the share of informal workers while tax hikes increase it, although effect sizes are modest. Second, the effects on informality vary significantly by firm size: payroll tax cuts reduce informality among wage earners only in large firms, which account for a small proportion of overall informality, while tax hikes shift employment toward small firms and increase their already higher share of informal workers. Third, the effects on informality are mainly driven by recently hired workers: tax cuts reduce reliance on newly hired workers, who are more likely to be informal, while tax hikes increase it, and informality is most affected among newly hired workers. Fourth, wages show little response to changes in payroll tax rates, both for formal and informal workers. Overall, these results provide new insights into the effects of payroll tax rate changes on labor markets with an informal sector, and highlight the importance of firm size and worker tenure in mediating the effects on informality.

This paper studies how misperceptions about career ladder incentives can affect turnover rates in manufacturing jobs in developing countries. We conducted a field experiment in one of the main industrial parks in Ethiopia, where we document significant misperceptions about the salary trajectory and the likelihood of being promoted to higher positions. We then conduct an information provision experiment, where we provide accurate information on career incentives estimated using records from the industrial park. We leverage the variation induced by our experiment to study how perceptions about career incentives causally affects workers’ turnover decisions. We find that optimistic updates about career prospects significantly increase the probability of remaining employed within the industrial park, while pessimistic updates reduce it. The effect is driven primarily by workers with higher educational attainment. We find no evidence of spillovers of information to control workers. 

This paper studies the effect of a tax amnesty on subsequent compliance with property taxes in Argentina. The property tax is a monthly amount calculated and billed on property owners by the government, so we define compliance as the amount paid over the liability billed for the corresponding month. Using an administrative panel of individual-level tax data, we exploit that one county implemented an amnesty and use taxpayers from unaffected nearby counties as a control group with a difference-in-differences approach. We find that compliance increases slightly after the amnesty: taxpayers in the amnesty county increase their compliance by about 2 percentage points relative to taxpayers from control counties. This increase in overall compliance can be separated into two components: (i) a substantial and persistent increase in compliance from taxpayers who enroll in an amnesty payment plan, and (ii) a minor increase in compliance from taxpayers who do not. Part of the increase in compliance among the enrolled is driven by higher take-up of a pay-in-advance alternative payment method that facilitates compliance. Finally, we study selection patterns into the amnesty, finding that the enrolled are significantly wealthier and were marginally better taxpayers in the pre-amnesty year. Overall, results are consistent with tax amnesties serving as a tool to get some delinquents back on compliance.

We exploit the random assignment of Brazilian municipalities to an audit programme to explore the link between audits and government hiring practices. We find that audited municipalities employ less labour to provide a given level of public services, and change the way in which they screen their employees—relying less on discretion and more on merit. Given that audits reduce corruption in the activities under scrutiny, our results suggest that different types of corruption can be complements rather than substitutes. 

• Government Pardons and Tax Compliance: the Importance of Wealth and Access to Public Goods (with Felipe Montaño Campos). Revista de Economía Política de Buenos Aires, 185-205, 2018

• Peer pressure: Experimental evidence from restroom behavior (with Bruno Cardinale Lagomarsino, Matías Gutman, Lucía Freira, María Laura Lanzalot, Leandro E. Malchik, Felipe Montaño Campos, Bianca Pacini, Martín A Rossi, Christian Valencia). Economic Inquiry 55 (3), 1579-1584, 2017