IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v26y2026i1p271-304n1002.html

Financing Infrastructure in the Presence of Informality

Author

Listed:
  • Addessi William

    (SEA and CRENoS, University of Cagliari, Cagliari, Italy)

  • Delogu Marco

    (DISEA and CRENoS, University of Sassari, Sassari , Italy)

Abstract

Public infrastructure investment plays a pivotal role in fostering economic development, yet low-income countries characterized by high informality make limited investments. The literature underscores that informality induces maintaining tax rates low, depleting the already limited funds available for public infrastructure. Within a framework that accounts for heterogeneous labor, we study the optimal labor-income taxation aimed at financing infrastructure. We develop the analysis with and without the presence of a binding legal minimum wage. Our findings reveal that the minimum wage increases the optimal tax rate, raises the income (and income share) of low-skilled workers, and induces higher infrastructure investments for a wide range of parameter settings. Furthermore, we show that in the presence of minimum wage, no clear relationship emerges between the beneficial impact of infrastructure on informal sector productivity and the share of the informal economy.

Suggested Citation

  • Addessi William & Delogu Marco, 2026. "Financing Infrastructure in the Presence of Informality," The B.E. Journal of Macroeconomics, De Gruyter, vol. 26(1), pages 271-304.
    • Handle: RePEc:bpj:bejmac:v:26:y:2026:i:1:p:271-304:n:1002
    DOI: 10.1515/bejm-2024-0181
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejm-2024-0181
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejm-2024-0181?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:26:y:2026:i:1:p:271-304:n:1002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.