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The Dynamics of the Informal Economy

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  • Roxana Gutierrez-Romero

Abstract

This paper analyses the factors that give rise to the existence of the informal economy and how it evolves over time. Using an occupational-choice model the paper shows that at early stages of development, informal and formal markets coexists, but in the long-run the size of the informal economy can decline depending on the initial distribution of wealth. The model shows that the higher the initial wealth inequality the larger the size of the informal economy and the higher the wealth inequality will be in the long run. The paper calibrates the model using numerical simulations.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2010-07.

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Date of creation: 2010
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Handle: RePEc:csa:wpaper:2010-07

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Keywords: informal economy; occupational choice and inequality;

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Cited by:
  1. Alicia Puyana & Jose Romero, 2012. "Informalidad y dualismo en la economía mexicana," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2012-11, El Colegio de México, Centro de Estudios Económicos.
  2. Alicia Puyana & José Romero, 2010. "Informalidad y dualismo en la economía mexicana," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2010-04, El Colegio de México, Centro de Estudios Económicos.
  3. Tehmina Khan & Monazza Aslam, 2013. "Mongolia : Gender Disparities in Labor Markets and Policy Suggestions," World Bank Other Operational Studies 16500, The World Bank.

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