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Informality and macroeconomic volatility: do credit constraints matter?

Author

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  • Catalina Granda Carvajal

Abstract

Purpose - – The purpose of this paper is to study the implications of borrowing constraints characterizing the informal sector for macroeconomic volatility. Design/methodology/approach - – To this end, the author develops a simple dynamic stochastic general equilibrium model wherein registered activity not only is the basis to determine tax liabilities, but also serves as collateral for securing debts. Such a framework allows for computational experiments to analyze the effect of informality on aggregate fluctuations. Findings - – The experiments show that the credit-constrained informal sector does exert a significant influence on the cyclical volatility of consumption and investment. Originality/value - – There are not many studies addressing the implications of informal economic activities for macroeconomic fluctuations. This paper contributes to the literature by developing a theoretical model showing that credit constraints characterizing these activities might play a non-negligible role in explaining the cyclical volatility of some important aggregates.

Suggested Citation

  • Catalina Granda Carvajal, 2015. "Informality and macroeconomic volatility: do credit constraints matter?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(6), pages 1095-1111, November.
    • Handle: RePEc:eme:jespps:v:42:y:2015:i:6:p:1095-1111
    DOI: 10.1108/JES-03-2014-0043
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    Citations

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    Cited by:

    1. Oksana Omelchenko & Oleksandr Dorokhov & Oleg Kolodiziev & Liudmyla Dorokhova, 2018. "Fuzzy Modeling of the Creditworthiness Assessments of Bank’s Potential Borrowers in Ukraine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 100-125.
    2. Bruno Chiarini & Maria Ferrara & Elisabetta Marzano, 2020. "Tax Evasion, Investment Shocks, and the Consumption Puzzle: A DSGE Analysis with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 907-932, June.
    3. Chiarini Bruno & Ferrara Maria & Marzano Elisabetta, 2024. "Noncompliant behaviors in general equilibrium: A survey," Journal of Economic Surveys, Wiley Blackwell, vol. 38(3), pages 931-955, July.
    4. Colin C. Williams & Ioana Alexandra Horodnic & Jan Windebank, 2017. "Evaluating the internal dualism of the informal sector: evidence from the European Union," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(4), pages 605-616, September.
    5. David Tobón Orozco & Carlos Molina & Harvey Vargas, 2018. "Can environmental taxes and payments for ecosystem services regulate pollution when the resilience of water bodies is surpassed?," Borradores Departamento de Economía 17179, Universidad de Antioquia, CIE.
    6. Chiarini, Bruno & Ferrara, Maria & Marzano, Elisabetta, 2022. "Tax evasion and financial accelerator: A corporate sector analysis for the US business cycle," Economic Modelling, Elsevier, vol. 108(C).
    7. A García-Suaza & M G�mez & F Jaramillo, 2021. "Fiscal policy and informality in Colombia," Documentos de trabajo - Alianza EFI 19416, Alianza EFI.

    More about this item

    Keywords

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    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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