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Measuring the Informal Economy in Latin America and the Caribbean

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Author Info

  • Guillermo Javier Vuletin

Abstract

This paper estimates the size of the informal economy for 32 mainly Latin American and Caribbean countries in the early 2000s. Using a structural equation modeling approach, we find that a stringent tax system and regulatory environment, higher inflation, and dominance of the agriculture sector are key factors in determining the size of the informal economy. The results also confirm that a higher degree of informality reduces labor unionization, the number of contributors to social security schemes, and enrollment rates in education.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/102.

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Length: 29
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/102

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Related research

Keywords: Latin America; Economic conditions; Economic models; Tax systems; Agricultural sector; Labor unions; social security; equation; correlation; surveys; social security schemes; correlations; statistics; covariances; equations; real variables; living conditions; social security system; survey; covariance; time series; standard deviation; bargaining; sample size; mean square; standard deviations; social security agencies; maximum likelihood estimation; family policies; social security systems; proxy measure; predictions; estimation method;

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References

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  1. Contini, Bruno B, 1981. "Labor Market Segmentation and the Development of the Parallel Economy-The Italian Experience," Oxford Economic Papers, Oxford University Press, vol. 33(3), pages 401-12, November.
  2. World Bank, 2005. "Organization of Eastern Caribbean States : Towards a New Agenda for Growth," World Bank Other Operational Studies 8616, The World Bank.
  3. David E. A. Giles, 1998. "Modelling the Hidden Economy and the Tax-Gap in New Zealand," Econometrics Working Papers 9810, Department of Economics, University of Victoria.
  4. Forteza, Alvaro & Rama, Martin, 2001. "Labor market"rigidity"and the success of economic reforms across more than one hundred countries," Policy Research Working Paper Series 2521, The World Bank.
  5. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  6. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  7. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  8. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  9. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
  10. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
  11. Isachsen, Arne Jon & Strom, Steiner, 1985. "The Size and Growth of the Hidden Economy in Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
  12. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303.
  13. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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Citations

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Cited by:
  1. Eduardo Lora & Johanna Fajardo, 2012. "Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes," IDB Publications 76958, Inter-American Development Bank.
  2. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
  3. Yasser Abdih & Leandro Medina, 2013. "Measuring the Informal Economy in the Caucasus and Central Asia," IMF Working Papers 13/137, International Monetary Fund.
  4. Brambila Macias, Jose, 2008. "The Dynamics of Parallel Economies. Measuring the Informal Sector in México," MPRA Paper 8400, University Library of Munich, Germany.
  5. Vargas, Jose P Mauricio, 2012. "To be or not to be informal?: A Structural Simulation," MPRA Paper 41290, University Library of Munich, Germany.
  6. Gaaitzen J. de Vries & Abdul A. Erumban & Marcel P. Timmer & Ilya B. Voskoboynikov & Harry X. Wu, 2011. "Deconstructing The BRICs: Structural Transformation And Aggregate Productivity Growth," HSE Working papers WP BRP 04/EC/2011, National Research University Higher School of Economics.
  7. Brambila Macias, Jose, 2008. "Modeling the Informal Economy in Mexico. A Structural Equation Approach," MPRA Paper 8504, University Library of Munich, Germany.
  8. Luisanna Onnis & Patrizio Tirelli, 2011. "Institutions, policies and economic development. What are the causes of the shadow economy?," Working Papers 206, University of Milano-Bicocca, Department of Economics, revised Mar 2011.
  9. Pokorny, Benno & de Jong, Wil & Godar, Javier & Pacheco, Pablo & Johnson, James, 2013. "From large to small: Reorienting rural development policies in response to climate change, food security and poverty," Forest Policy and Economics, Elsevier, vol. 36(C), pages 52-59.
  10. Richard M. Bird & Michael Smart, 2012. "Financing Social Expenditures in Developing Countries: Payroll or Value Added Taxes?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1206, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. Friedrich Schneider, 2014. "Outside the State - the Shadow Economy and Shadow Economy Labor Force," CESifo Working Paper Series 4829, CESifo Group Munich.

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