Informality Effects in the Informality Effects in the Economy of Albania in light of Economy of Albania in light of World’s Economic CrisisWorld’s Economic Crisis

Working Group:Working Group:BRUNILDA MUCABRUNILDA MUCAGALANTINA DORACIGALANTINA DORACI

Advancing Socio-Economic Research

May 18-19,2012BUCHAREST, RUMANIA

TABLE OF CONTENTS TABLE OF CONTENTS

IntroductionIntroduction

MethodologyMethodology

Research ResultsResearch Results

ConclusionsConclusions

INTRODUCTIONINTRODUCTION In the beginning of the 21st century the economies of many countries

were impacted by the economic crises and given the length and size of the crisis it constituted a global crisis.

Under these conditions, this calls for a larger number of researcher papers, including scientific and public debate, which aims to take into consideration the factors that lead to it, including ways out of it and the tools to reduce its consequences in the economic and social life of various countries.

Therefore it is clear that different countries have used different courses and specific ways in reducing the consequences of the global crisis.

METHODOLOGYMETHODOLOGY

Theoretical studies of various researchers of this field, such as Cohen, B., Kindleberger, Ch. P., and the Albanian experience in the conditions of the present crisis make for an important reference point.

Methodology used is based on:– literature and data from Ministry of Agriculture Food and Consumer

Protection and General Tax Directorate

which evidence present situation of informal economy in agriculture sector and provide some ways to reduce it.

The objective is evidencing the informal sector in the Albanian economy, and possibilities of reducing it as an anti crisis factor.

The global crises which started in the aftermath of Wall Street in 2008, constitutes a financial phenomena which the world faced during previous period as well.

In the last 380 years 450 crises situations have been noticed - crisis of 1917, of 1929, the international market collapse in 1987, etc.

Based on the size of its spread, the financial blow that they give and the consequences they bring about make it an object for scientific research.

RESEARCH RESULTS RESEARCH RESULTS

RESEARCH RESULTSRESEARCH RESULTS The crises and its consequences constitutes a preoccupying

problem, for the countries directly affected by the crisis AND those suffering its consequences.

Albania belongs to group 2. Albania has not been directly affected by the crises but it has

been impacted by its consequences. The non-inclusion of the Albanian economy in the swirl of

the global economic crisis should be found in the economic policies and practices that have been implemented in the country.

It undertook careful crediting policies It has focused in the reduction of informal economy as an

anti-crisis factor

Agriculture sector plays an important role in the Albanian Agriculture sector plays an important role in the Albanian economy, as it provides ~ 25 % its GDPeconomy, as it provides ~ 25 % its GDP

Recent data indicate that rural population in Albania Recent data indicate that rural population in Albania carries its activities through 368,997 agricultural carries its activities through 368,997 agricultural economic units, known also as farms. The area of these economic units, known also as farms. The area of these units ranges between 0.52 to 1.13 hectares. units ranges between 0.52 to 1.13 hectares.

These figures obviously show that the agricultural These figures obviously show that the agricultural economy units (farms) are relatively small.economy units (farms) are relatively small.

Thus - most of them are survival or self consumer Thus - most of them are survival or self consumer economies. economies.

RESEARCH RESULTSRESEARCH RESULTS

RESEARCH RESULTSRESEARCH RESULTS

Given the small area owned by the farmer, the Given the small area owned by the farmer, the farmer undertakes by himself the capital risk. farmer undertakes by himself the capital risk.

According to Schneider and Enste (2000) this type According to Schneider and Enste (2000) this type of economic activity is considered as first level of of economic activity is considered as first level of informal businesses. Back in 1990 and onward informal businesses. Back in 1990 and onward farms have not been taxed neither for their economic farms have not been taxed neither for their economic activity, nor the land they own. activity, nor the land they own.

THUS…THUS…

Informality in this sector has a relative Informality in this sector has a relative representation due to the fact that representation due to the fact that government itself has allowed it by government itself has allowed it by avoiding farmers’ taxes (relieving them of avoiding farmers’ taxes (relieving them of taxes) in order for inhabitants to fulfill taxes) in order for inhabitants to fulfill their survival needs. their survival needs.

Classifications of Informal Classifications of Informal EconomyEconomy

National Economy

Official Economy

Non-official Economy

Public Sector Private SectorShadow

EconomySelf-Sufficient

Economy

Schneider and Einste

From Schneider and From Schneider and EinsteEinste

Category 1: Category 1: includes business “for survival”. includes business “for survival”. Agricultural farms are part of informal business “for survival” Agricultural farms are part of informal business “for survival”

which are been treated and relieved of taxes by the government which are been treated and relieved of taxes by the government because of poverty and their need to survive. because of poverty and their need to survive.

So agricultural farms are been treated by the government in the So agricultural farms are been treated by the government in the specific way. specific way.

Presence of survival economies in agriculture keeps informality in Presence of survival economies in agriculture keeps informality in this sector and in the entire country still present.this sector and in the entire country still present.

Category 2: Category 2: includes “growing enterprises”includes “growing enterprises” Given these business are not officially registered, they are Given these business are not officially registered, they are

considered informal economic activitiesconsidered informal economic activities However, they have the potential to be transformed into formal However, they have the potential to be transformed into formal

enterprisesenterprises

CONCLUSIONSCONCLUSIONS

Informal sector will still exist for a certain period of Informal sector will still exist for a certain period of time due to the presence of “survival” farms in rural time due to the presence of “survival” farms in rural areas. areas.

Proportions of informal economy extension in rural Proportions of informal economy extension in rural areas can be measured through different approachesareas can be measured through different approaches

Support and involvement of farmers towards Support and involvement of farmers towards cooperation on one side and reduction of informality, cooperation on one side and reduction of informality, on the other hand on the other hand

CONLUSIONSCONLUSIONS

It would be important to note that the demographic map of Albania has changed a lot in the transition years through inner migration. This created approximately 800 informal zones, with some 150,000 illegal settlements, and which is calculated to have cost between $3 to $4 billion. This is known as dead capital, as long the illegal settlements are not legalized.

Fiscal evasion and non adherence to the fiscal legislation is one of the most prominent forms of informality. Fiscal informality is encountered in those businesses that have not registered with tax authorities, or that avoid part of fiscal obligations. Officially it is reported that about 15 percent of taxes are not paid, but the Albanian reality shows that some 30 percent of taxes are not paid. One third of businesses operate as unregistered.

Informal economy has brought about its effects in the social development of the country, as it has touched the education and health sectors as well.

CONCLUSIONSCONCLUSIONS

Some of the alternatives in designing Some of the alternatives in designing informality-fighting policies are:informality-fighting policies are:

registration and administration of taxesregistration and administration of taxes administration of customsadministration of customs increase in the social insurance contribution increase in the social insurance contribution

schemescheme drafting support policies on the organization of drafting support policies on the organization of

cooperative farms.cooperative farms.

THANK THANK YOU!YOU!