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Informal Sector, Fiscal Policy, and Growth: Theory and Some Empirical Evidence

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  • Di Domizio, Marco

Abstract

This paper uses an endogenous growth model to investigate the relationships among the fiscal policy, the informal sector and the economic growth. It is shown that the proportion of informal to formal production could be negatively correlated with the fiscal rate if the enforcement policy of the government is made endogenous. Conditions under which this is possible and the implications for a new set of relationships between fiscal policy and economic growth are discussed. Some empirical evidence for the new relationships is obtained by an econometric investigation focused on the Italian experience of enforcement policy and growth.

Suggested Citation

  • Di Domizio, Marco, 1998. "Informal Sector, Fiscal Policy, and Growth: Theory and Some Empirical Evidence," Public Finance = Finances publiques, , vol. 53(3-4), pages 419-438.
    • Handle: RePEc:pfi:pubfin:v:53:y:1998:i:3-4:p:419-38
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