The Dynamics of the Informal Economy
AbstractThis 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 InfoPaper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2010-07.
Date of creation: 2010
Date of revision:
informal economy; occupational choice and inequality;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-CMP-2010-08-06 (Computational Economics)
- NEP-DEV-2010-08-06 (Development)
- NEP-ENT-2010-08-06 (Entrepreneurship)
- NEP-LAW-2010-08-06 (Law & Economics)
- NEP-ORE-2010-08-06 (Operations Research)
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