Modelling the Informal Economy in Mexico. A Structural Equation Approach
AbstractThis paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. Our results indicate that the Mexican informal sector at the beginning of the 1970’s accounted for 40 percent of GDP, and then it slightly decreased to stabilize around 30 percent of GDP from the late 1980’s onwards. The results also confirm the importance of salaries and excessive regulation as causes of the informal economy in Mexico and the existence of a positive relationship between informality and GDP.
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Bibliographic InfoPaper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2008_41.
Date of creation: 2008
Date of revision:
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Postal: Cannaregio, S. Giobbe no 873 , 30121 Venezia
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Informal Economy; Economic Growth; Structural Equations;
Other versions of this item:
- Brambila Macias, Jose, 2008. "Modeling the Informal Economy in Mexico. A Structural Equation Approach," MPRA Paper 8504, University Library of Munich, Germany.
- C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
- E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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