On the political economy of the informal sector and income redistribution
AbstractIn this paper we analyze a general equilibrium model in which agents choose to be employed in formal or in the informal sector. The formal sector is taxed to provide income subsidies and the level of redistribution is determined endogenously through majority voting. We explore how the demand for redistribution determined by majority voting interacts with the incentive to work in the untaxed informal market. We also investigate how different levels of the informal sector wage can explain simultaneous changes in the size of the informal sector and level of redistribution. The model is simulated to produce qualitative results to illustrate the differences between economies with different distributional features. The model accounts for the different sizes of informal sector and income redistribution in Mexico and United States.
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Bibliographic InfoArticle provided by Springer in its journal European Journal of Law and Economics.
Volume (Year): 32 (2011)
Issue (Month): 1 (August)
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Web page: http://www.springerlink.com/link.asp?id=100264
Informal sector; Income redistribution; Median voter; H2; D3; J2;
Other versions of this item:
- Ozan Hatipoglu & Gulenay Ozbek, 2007. "On the Political Economy of the Informal Sector and Income Redistribution," Working Papers 2007/11, Bogazici University, Department of Economics.
- Hatipoglu, Ozan & Ozbek, Gulenay, 2008. "On the Political Economy of the Informal Sector and Income Redistribution," MPRA Paper 7857, University Library of Munich, Germany.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- D3 - Microeconomics - - Distribution
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
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