There will always be shadow economies, much like the mercenary armies of medieval Italy where a “Great Company” would have its “condottiero, which in medieval Italian originally meant "contractor" since the condotta was the contract by which the condottieri put themselves in the service of a city or of a lord.” The thing is, pirate economies are not the perfect libertarian boondoggles one might think.
The informal economy has its own set of agreements, often enforced unevenly in such contracted work, no different in the post-Fordist economy of globalism. Needless to say, the gender division of labor may be the largest shadow economy. Neoliberal practices encouraging deregulatory capital and labor emphasize anti-collective organization in a gig economy of disintegrated prices and wages. The capitalist claim is that “removal of 'red tape' (i.e. regulation) to attract or retain mobile capital” where that mobile capital often runs into the shadows.
The research problem is the measurement of the informal economy considering how much envelope payment happens not only at the street level but in the massive money laundering at a global level, and then there’s the wealth held in off-shore locations revealed by exposes like Panama Papers and Pandora Papers. Environmental damage remediation is one of many areas where a sanctioned shadow economy will expand with investment in unproductive projects that will not alter global warming but remain profitable in their failure.
A factory worker has a second job driving an unlicensed taxi at night; a plumber fixes a broken water pipe for a client, gets paid in cash but doesn't declare his earnings to the tax collector; a drug dealer brokers a sale with a prospective customer on a street corner. These are all examples of the underground or shadow economy—activities, both legal and illegal, that add up to trillions of dollars a year that take place "off the books," out of the gaze of taxmen and government statisticians.
A shadow economy is an economy of shadows, not simply because of the possibility of a platonic metaphor, but because shadows can be long and obfuscating. The critical reality in the global economy’s shadows is also about defining how it is cast across a surface. The negation of light doesn’t mean it can’t be “disinfected” as with sunshine laws, rendered meaningless in states like Florida with its kleptocratic chaos.
This could make the estimated size of the underground economy actually twice as large as its estimates. The holding of offshore financial wealth also doesn’t mean that it sits idle.
Thomas Piketty 's core proposition is that inequality has next to nothing to do with economy and technology but is an ideological-political issue that can be solved through taxation. Except that considerable transaction costs are expended on legal tactics for tax avoidance that may border on tax evasion. We see this difference spelled out in the methods that Trump’s company evaded taxes for which he could be indicted.
It’s all a game of hot potato/tomato: Corporations can employ different tax-avoidance strategies to lower their taxes by structuring operations and transactions so that they result in the smallest tax burdens. Conversely, tax evasion refers to tax reductions that are illegal (e.g., reducing taxes paid by deceit, subterfuge or concealment).
Is the tax burden if avoidable or evadable reducible to law-related transactions. Are such transactions a form of commodity whose value is dependent on resource endowments including time and capital necessary to sustain litigation. Is the coding of taxes merely another structure of accumulation?
A legal geography explicates the grounded, embodied effects of law in the constitution of the world and challenges “the impression that law aspires to dematerialisation, that it seeks to marginalise specificity (i.e. local distinctiveness) and that law seeks to erase spatiality”. By including the field of economic geography and its Georgist and Sraffian variations with the heterodox tendencies in economics, a legal geography would situate the spatial and contingent relations of national and regional economies projects like the conundra of the shadow economy. For example, there is a “curious absence of law in geographic accounts of state restructuring in relation to neoliberal economic globalization. It argues that law is ever-present in many of the issues at the center of geographic debates, yet rarely given sustained attention.”
That sustained attention is essential if a shadow economy is to be studied through research that studies how “law produces the pockmarked landscape of the global economy through both the extension of legal frameworks and the legally authorized suspension of legal systems”. The social networks of “the dialectic nature of financial agglomeration and market embeddedness” also reveal themselves in the climate crisis, among the various neoliberal approaches to carbon market financialization and the critique of their ability to actually deliver carbon reduction. The obvious contradictions of the past US administration’s touting “clean coal” reveal the spatial contradiction of land and resource policies serving the usual institutional suspects of late capitalism.
In the long-term, scholars see that laws have become more centralized, which often facilitates standardization across a country or space, but could create social or conflict consequences in places where laws run counter to local interests. This often occur in resource extraction but can also be relevant where there are overlapping interests such as miners and agriculturalists wanting access to the same land.[5] Considerations of geography and use of space are, therefore, important in creating and shaping how law is implemented.
www.geographyrealm.com/...
"Taxes are what we pay for civilized society," FDR wrote, invoking former Supreme Court Justice Oliver Wendell Holmes. He then added his own knife twist: "Too many individuals, however, want the civilization at a discount."
The Scripps, Mellon and Mars families are living proof of the triumph of tax avoidance and the durability of dynastic fortunes: Their combined wealth today is pegged by Forbes at $114 billion. Over the years, members of all three families have played prominent roles in the modern anti-tax movement and have helped shape tax policy. And in a century long cat-and-mouse game, Congress has scrambled to keep up with their tactics.
With each new rewrite of the tax code, the superrich deploy clever trusts and armies of lawyers and lobbyists to find ways not to pay. Even legislation specifically designed to prune fortunes before they pass to the next generation has not been much of an impediment.
Take the estate tax, which was established in 1916, and has never quite worked the way Congress intended. Over the years the rates have changed, but the goal of taxing the wealthiest Americans has remained. This year, the estate tax applies to couples worth more than $23.4 million.
Faced with taxes at death, some of the rich simply passed their fortunes to their heirs while they were alive. So Congress enacted a tax on those gifts. Enterprising parents got around the full bite of estate taxes by skipping their kids and giving their wealth to their grandchildren. Then came the 1976 tax imposed on gifts that skip a generation. Throughout, the ultrarich have stayed one step ahead.
www.salon.com/...
Wind shadow is not the blade flickering claimed to be a social cost and even a public hazard but is the difference between a wind farm turbine tower and the disruption of wind speed that some how can only be complained about much like those who choose to build homes on a flood plain.
Why would you want to live close enough to have a your lives damaged by environmental harms. That is the question of environmental racism, “deeply entrenched in our systems and policies through zoning regulations, urban planning and the placement of landfills and hazardous waste plants”. The shadows are more about being in housing developments for worker populations located close to high-polluting factories, where like the markets for pollution credits, are commidfying sickness and death.
A global pandemic and a concurrent climate crisis is the kind of ecological calamity that can reinstate the importance of ecosocialist political economy in the critique of capitalism.
Shadows that can be measured are carbon prices, and those shadow prices can help measure informal economies even if they cannot get us to the place where policy must take us, to reinstate more regulatory wealth redistribution. Another measure could be thinking of a contract economy not unlike an insurance product economy as a commodity economy. Even a contract economy facilitates shadow pricing and a shadow economy.
The shadow economy is one with an ensemble of informal contracts, often more complex in their informality. The United States of Tax Havens. The Pandora Papers reveal how billionaires, oligarchs, and despots the world over exploit America's patchwork of tax havens.
A shadow economy equal to 9-12 per cent of total economic activity is not untypical for Anglo-Saxon countries, and levels of 20-30 per cent are common in southern Europe. Not only could tax rates be lower if the shadow economy were smaller but, if the size of the state were smaller, the shadow economy would be smaller.
iea.org.uk/…
Shadow economic activity is problematic for several reasons. One of the purposes of government is to provide the legal framework within which economic activity takes place; and societies with good institutions prosper. But when it comes to shadow work those legal institutions are bypassed: contracts can often be unenforceable; economic relationships can become marred by violence; and it can become very difficult for businesses to expand because they then come to the attention of the authorities. A large shadow economy also means that tax rates are higher for those working in the formal economy. Furthermore, as is shown in this monograph, there is a relationship between the size of the tax burden and the size of the shadow economy.
- An increase in direct and indirect taxation increases the shadow economy.
- An increase in social security contributions increases the shadow economy.
- The higher the level of regulation, the greater the incentives are to work in the shadow economy.
- The lower the quality of state institutions, the greater the incentives are to work in the shadow economy.
- The lower tax morale, the greater the incentives are to work in the shadow economy.
In addition to these hypotheses, it is also reasonable to assume that:
- The higher is unemployment, the more people engage in shadow economy activities.
- The lower GDP per capita is in a country, the higher is the incentive to work in the shadow economy.
iea.org.uk/…
Economic analysis of law usually proceeds under the assumptions of neo-classical economics. But empirical evidence gives much reason to doubt these assumptions; people exhibit bounded rationality, bounded self-interest, and bounded willpower.
www.law.harvard.edu/...
Law and economics stresses that markets are more efficient than courts. When possible, the legal system, according to the positive theory, will force a transaction into the market. When this is impossible, the legal system attempts to “mimic a market” and guess at what the parties would have desired if markets had been feasible.
The second characteristic of law and economics is its emphasis on incentives and people’s responses to these incentives. For example, the purpose of damage payments in accident (tort) law is not to compensate injured parties, but rather to provide an incentive for potential injurers to take efficient (cost-justified) precautions to avoid causing the accident. Law and economics shares with other branches of economics the assumption that individuals are rational and respond to incentives. When penalties for an action increase, people will undertake less of that action. Law and economics is more likely than other branches of legal analysis to use empirical or statistical methods to measure these responses to incentives.
The private legal system must perform three functions, all related to property and property rights. First, the system must define property rights; this is the task of property law itself. Second, the system must allow for transfer of property; this is the role of contract law. Finally, the system must protect property rights; this is the function of tort law and criminal law. These are the major issues studied in law and economics. Law and economics scholars also apply the tools of economics, such as game theory, to purely legal questions, such as various parties’ litigation strategies. While these are aspects of law and economics, they are of more interest to legal scholars than to students of the economy.
www.econlib.org/...
Germany’s climate policy under Merkel has failed because of four reasons: firstly, Germany’s recent CO2 emission reduction came because of none other than the Coronavirus pandemic. Yet, Germany’s recent reductions were not as significant as its 1990 to 1995 reduction. Secondly, Germany’s overall emission reduction during the last two decades resulted – to a large extent – from an almost complete de-industrialization of former East-Germany. Thirdly, Germany’s next significant reduction came in the wake of the Global Financial Crisis of 2007-2009 (GFC).
Fourthly, while CO2 emissions in Germany’s energy and industrial sector are largely stagnating and not going down as widely presented in Germany’s mobility sector, things are even worse. To a large part, this is because of a rapid motorization of the former East-Germany during the last few decades. In the area of CO2 emissions in the building and construction, Germany has achieved virtually nothing.
www.counterpunch.org/...
To an economist, a contract is an agreement under which two parties make reciprocal commitments in terms of their behavior – a bilateral coordination arrangement. Of course, this formulation touches on the legal concept of the contract (a meeting of minds creating effects in law), but also transcends it. Over the course of the past thirty years, the “contract” has become a central notion in economic analysis (section 2), giving rise to three principal fields of study: “incentives,” “incomplete contracts,” and “transaction costs” (section 3). This opened the door to a revitalization of our understanding of the operation of market economies … and of the practitioner's “toolbox” (section 4).
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Since the market cannot always work efficiently, it is required that contract law is introduced as a supplementary mechanism for transactions. Economists assume that there is a close relationship between the structure of contract damage rules, people's behaviour and social efficiency. An efficient law is able to facilitate people's capacity for welfare maximization in the transactions, and to promote social efficiency.
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As discussed elsewhere, the New Institutional Economics works predominantly at two levels: the institutional environment, which includes both the formal (laws, polity, judiciary) and informal (customs, mores, norms) rules of the game, and the institutions of governance (markets, firms, bureaus) or play of the game (Williamson 1998). The transaction-cost economics approach to economic organization is concerned principally with the latter, with special emphasis on the governance of contractual relations. As it turns out, this approach to economic organization has wide application, generates a large number of refutable implications to which the data are broadly corroborative, and has many public policy ramifications – especially to anti-trust and regulation but to include labor, corporate governance, corporate finance, privatization, and the list goes on.
That the study of governance has such broad application is because any issue that arises as or can be reformulated as a contracting problem can be examined to advantage in transaction-cost economizing terms. Many issues present themselves naturally in this form – the mundane make-or-buy decision being an example. The comparative contractual choice to be made here is whether a firm should contract out for the provision of a good or service or take the transaction out of the market and manage it internally. The contractual nature of other transactions is more subtle – as with the corporate finance decision, where the choice needs to be made between debt and equity. Ordinarily debt and equity are treated as strictly financial instruments, but they are also usefully viewed as alternative modes of governance – where debt is the more market-like mode of contracting for project finance and equity is the more administrative form and is akin to hierarchy.
www.persee.fr/...
There are many ways in which the United States is not one country.
I’m not referring to red states versus blue states, or racial or ethnic divisions. What I mean is that the United States, where countless corrupt billionaires and dictators have stashed their loot, is not a single tax haven, but many separate tax havens.
The Pandora Papers, released in October, show that the United States is second only to the Cayman Islands in facilitating illicit financial flows. But it’s not a simple picture.
Each state and territory has its own laws and regulations about financial transactions used for tax evasion or money laundering. And both red states and blue states are destinations for those who seek to hide their money from tax collectors and public scrutiny.
President Biden’s home state of Delaware has long been renowned for its use as a tax haven, beginning in the late 19th century. Reliably Democratic in national politics, Delaware still ranks at the top among U.S. states providing secrecy for corporations and ultra-high-wealth individuals, both domestic and foreign.
But the Pandora Papers cite ruby-red South Dakota as an attractive destination for billionaires and others seeking to avoid estate taxes.
[...]
The International Consortium of Investigative Journalists (ICIJ), which led the Pandora Papers investigation, obtained access to the records of the Sioux Falls office of Trident Trust. Among its clients were the family of Carlos Morales Troncoso, former president of Central Romana, the largest sugar plantation in the Dominican Republic — which is notorious for its exploitation of Haitian workers.
South Dakota led the way in providing such trusts, as reported in detail even before the current revelations. But other states, including Alaska, Florida, Delaware, Texas, and Nevada, have followed suit.
The Pandora Papers also document the luxury real estate holdings of Jordan’s King Abdullah. Like many other politicians and oligarchs around the world, King Abdullah owns real estate in many places outside his country. The ICIJ found records of his purchases in London and Washington, D.C., among other cities, as well as three side-by-side mansions in a luxury enclave in Malibu, California.
Bottom line: those seeking to track down the hidden wealth that dictators, criminals, or jet-setting billionaires have lodged in the United States must not limit their efforts to supporting changes in national legislation in Washington, D.C. They must also turn the spotlight on state and local communities around the country.
inequality.org/…
Venture capitalists often see themselves like oceanic privateers, where piratical contracts are more irregular, even to the point of trying to characterize them as the ideal libertarians. The reality is sadly much more the function of mercantilism gone amok. The Great Company was a group of mercenaries, chiefly of German origin but operating in the Italian peninsula, who flourished in the mid-14th century. At its height, the company numbered approximately 10,000-12,000 men, chiefly armored cavalry. The Great Company's power set the pattern for later condottieri who came to dominate Renaissance Italian warfare.
These are not ideal libertarians but more like the post-apocalyptic groupings of the Mad Max movies where “the central lesson to be learned, from both the (pirate economy) workshop and Leeson’s book, is that the concept of individual self-interest is incoherent. That is arguably the major problem with economics and the major contribution that Multilevel Selection Theory can make in providing a more coherent alternative.”
Hot money usually originates from the capital-rich, developed countries that have lower GDP growth rate and lower interest rates compared to the GDP growth rate and interest rate of emerging market economies such as India, Brazil, China, Turkey, Malaysia etc. Although the specific causes of hot money flow are somewhat different from period to period, generally, the following could be considered as the causes of hot money flow:[3]
- a sustained decline of interest rates in the highly industrialized, developed countries. The lower interest rates in the developed nations attract investors to the high investment yields and improving economic prospects in Asia and Latin America.
- a general trend towards international diversification of investments in major financial centers and towards growing integration of world capital markets.
- Emerging market countries began to adopt sound monetary and fiscal policies as well as market-oriented reforms including trade and capital market liberalization. Such policy reforms, among others, have resulted in a credible increase in the rate of return on investments.
As described above, hot money can be in different forms. Hedge funds, other portfolio investment funds and international borrowing of domestic financial institutions are generally considered as the vehicles of hot money. In the 1997 East Asian Financial Crisis and in the 1998 Russian Financial Crisis, the hot money chiefly came from banks, not portfolio investors.[4]
en.wikipedia.org/...
• Measurement of the shadow economy is notoriously difficult as it requires estimation of economic activity that is deliberately hidden from official transactions. Surveys typically understate the size of the shadow economy but econometric techniques can now be used to obtain a much better understanding of its size.
• The shadow economy constitutes approximately 10 per cent of GDP in the UK; about 14 per cent in Nordic countries and about 20–30 per cent in many southern European countries.
• The main drivers of the shadow economy are (in order): tax and social security burdens, tax morale, the quality of state institutions and labour market regulation. A reduction in the tax burden is therefore likely to lead to a reduction in the size of the shadow economy. Indeed, a virtuous circle can be created of lower tax rates, less shadow work, higher tax morale, a higher tax take and the opportunity for lower rates. Of course, a vicious circle in the other direction can also be created.
• Given this relationship, the high level of non-wage costs (averaging 39 per cent of total labour costs) and the penalty on individuals who move from earning one third to two thirds of the median wage (averaging 58 per cent of the increase in earnings for a one-earner couple) in the European Union should be a matter of real concern. The latter figure is 79 per cent in the UK and thus low-paid UK workers have a huge incentive to supplement their incomes in the shadow economy.
• The number of participants in the shadow economy is very large. Although up-to-date figures are not available, at the end of the twentieth century up to 30 million people performed shadow work in the EU and up to 48 million in the OECD. Reliable detailed studies are not available for many countries. In Denmark, however, the latest studies suggest that about half the population purchases shadow work. In some sectors – such as construction – about half the workforce is working in the shadow economy, often in addition to formal employment. Only a very small proportion of shadow economy workers can be accounted for by illegal immigrants in most countries.
• In western Europe, shadow work is relatively prevalent among the unemployed and the formally employed. Other non-employed (for example, the retired, homemakers and students) do relatively less shadow work. This has implications for policy in terms of the importance of social security systems that reduce the opportunities for shadow work among the unemployed and the importance of tax systems that do not discourage the declaring of extra income.
• Policies focused on deterrence are not likely to be especially successful when tackling the shadow economy. The shadow economy is pervasive and made up of a huge number of small and highly dispersed transactions. We should also be wary about trying to stamp out the shadow economy as we may stamp out the entrepreneurship and business formation that goes with it.
• There are, however, huge potential benefits from allowing the self-employed and small businesses to formalise their arrangements. Businesses cannot flourish if they remain in the shadow economy. They might be reluctant to formalise, however, if it involves admitting to past indiscretions. Worthwhile policies include: reducing business compliance regulation; amnesties; providing limited tax shelters for small-scale informal activity such as the provision of interest-bearing loans to relatives and friends; and allowing businesses to formalise using simple ‘off the shelf’ models. Such policies have been successful in other countries – and to a limited extent in the UK – with high benefit-to-cost ratios.
• Given that the shadow economy constitutes a high proportion of national income, and varies between less than8 per cent of national income and over 30 per cent of national income in OECD countries, official national income statistics can often be misleading. Comparisons are made even more difficult because some countries adjust figures for the shadow economy (for example, Italy) and others do not.
• In less developed countries, the informal sector constitutes typically between 25 and 40 per cent of national income and represents up to 70 per cent of non-agricultural employment. In such countries, informal activity often arises because of the inadequacies of legal systems when it comes to formalising business registration.
iea.org.uk/...
1. Lump Sum or Fixed Price Contract Type
2. Cost Plus Contracts
3. Time and Material Contracts When Scope is Not Clear
4. Unit Pricing Contracts
5. Bilateral Contract
6. Unilateral Contract
7. Implied Contracts
8. Express Contracts
9. Simple Contract
10. Contract Under Seal
11. Unconscionable Contracts
12. Adhesion Contracts
13. Aleatory Contracts
www.upcounsel.com/…
A happy and productive new year to you all.