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Firms, Informality, and Development: Theory and Evidence from Brazil

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  • Gabriel Ulyssea

Abstract

This paper develops and estimates an equilibrium model where heterogeneous firms can exploit two margins of informality: (i) not register their business, the extensive margin; and (ii) hire workers "off the books," the intensive margin. The model encompasses the main competing frameworks for understanding informality and provides a natural setting to infer their empirical relevance. The counterfactual analysis shows that once the intensive margin is accounted for, firm and labor informality need not move in the same direction as a result of policy changes. Lower informality can be, but is not necessarily associated with higher output, TFP, or welfare.

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  • Gabriel Ulyssea, 2018. "Firms, Informality, and Development: Theory and Evidence from Brazil," American Economic Review, American Economic Association, vol. 108(8), pages 2015-2047, August.
  • Handle: RePEc:aea:aecrev:v:108:y:2018:i:8:p:2015-47
    Note: DOI: 10.1257/aer.20141745
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    Cited by:

    1. Bobba, Matteo & Flabbi, Luca & Levy, Santiago & Tejada, Mauricio, 2019. "Labor Market Search, Informality, and On-The-Job Human Capital Accumulation," TSE Working Papers 19-983, Toulouse School of Economics (TSE).
    2. repec:eee:ecolet:v:176:y:2019:i:c:p:23-27 is not listed on IDEAS
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    5. Renata Narita, . "Self-Employment in Developing Countries: A Search-Equilibrium Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    6. David Jaume, 2018. "The Labor Market Effects of an Educational Expansion. A Theoretical Model with Applications to Brazil," CEDLAS, Working Papers 0220, CEDLAS, Universidad Nacional de La Plata.
    7. Bernabe Lopez-Martin & David Perez-Reyna, 2018. "Contracts, Firm Dynamics and Aggregate Productivity," Documentos CEDE 016821, Universidad de los Andes - CEDE.
    8. Renata Narita, . "Self-Employment in Developing Countries: A Search-Equilibrium Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    9. Dix Carneiro,Rafael & Kovak,Brian K., 2015. "Trade reform and regional dynamics : evidence from 25 years of Brazilian matched employer-employee data," Policy Research Working Paper Series 7205, The World Bank.
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    11. Clement Imbert & Marlon Seror & Yifan Zhang & Stephan Yanos Zylberberg, 2018. "Migrants and Firms: Evidence from China," Bristol Economics Discussion Papers 19/713, Department of Economics, University of Bristol, UK.
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    20. Francisco B. Galarza & Fernando Requejo, 2019. "Reducing Informality Using Two-Sided Incentives: Theory and Experiment," Working Papers 149, Peruvian Economic Association.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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