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The Informal Economy in Peru: Magnitude and Determinants, 1980-2011

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  • Roberto Machado

Abstract

This paper estimates the size of the informal economy in Peru during the period 1980-2011 by using the multiple indicators-multiple causes method (MIMIC). Estimates indicate that the informal economy has fluctuated between 30% and 45% of official GDP during the period analyzed and has exhibited an anti-cyclical behavior, increasing during periods of economic crisis and contracting during economic booms. An econometric exploration of the determinants of the size of the informal economy indicates that productivity plays the leading role, more so than the VAT tax rate. Marginal income tax rates and the minimum wage do not have any effect on the size of the informal economy.

Suggested Citation

  • Roberto Machado, 2014. "The Informal Economy in Peru: Magnitude and Determinants, 1980-2011," Apuntes. Revista de ciencias sociales, Fondo Editorial, Universidad del Pacífico, vol. 41(74), pages 197-233.
    • Handle: RePEc:pai:apunup:en-74-07
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