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What causes firms to hide output? The determinants of informality

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  • Dabla-Norris, Era
  • Gradstein, Mark
  • Inchauste, Gabriela

Abstract

In many developing countries, a significant part of economic activity takes place in the informal sector. Earlier work has examined the determinants of the size of the informal sector, focusing separately on factors such as tax and regulation burden, financial market development, and the quality of the legal system. We revisit this issue by using an integrated dataset which contains rich information on all these aspects. Testing the channels affecting the degree of informality, we find evidence that all previously identified factors indeed play a role in driving informality. In particular, and consistent with the suggested theoretical model, we find support for the significance of the quality of the legal system.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 85 (2008)
Issue (Month): 1-2 (February)
Pages: 1-27

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Handle: RePEc:eee:deveco:v:85:y:2008:i:1-2:p:1-27

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Web page: http://www.elsevier.com/locate/devec

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References

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  6. Pierre-Daniel G. Sarte, 1999. "Informality and rent-seeking bureaucracies in a model of long-run growth," Working Paper 99-07, Federal Reserve Bank of Richmond.
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