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The Effect of Informal Economy on Income Inequality: Evidence from Turkey

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  • Adem Y. Elveren Author-Email: aelveren@fitchburgstate.edu

    (Department of Economics, History and Political Science, Fitchburg State University, Massachusetts, US Author-Name: Gökçer Özgür Author-Email: gozgur@hacettepe.edu.tr
    Corresponding author Department of Economics, Hacettepe University, Turkey)

Abstract

By considering the manufacturing pay inequality index as a proxy for overall income inequality and a novel index for the informal economy, this study analyzes the relationship between income inequality and the size of the informal economy in Turkey for the first time during the period of 1963-2008. For this purpose, we employ a time-series analysis with the Johansen cointegration test, a vector error correction model and the Granger causality tests. The findings suggest that while an increase in income inequality and foreign trade competitiveness leads to an expansion of the informal sector, unemployment has negative effects on the informal sector.

Suggested Citation

  • Adem Y. Elveren Author-Email: aelveren@fitchburgstate.edu, 2016. "The Effect of Informal Economy on Income Inequality: Evidence from Turkey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(3), pages 293-312, June.
  • Handle: RePEc:voj:journl:v:63:y:2016:i:3:p:293-312
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    File URL: http://www.panoeconomicus.rs/casopis/2016_3/03%20Adem%20Y%20Elveren%20and%20%20Gokcer%20Ozgur.pdf
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    References listed on IDEAS

    as
    1. Aysit Tansel & Elif Oznur Acar, 2016. "The Formal/Informal Employment Earnings Gap: Evidence from Turkey," Research on Economic Inequality, in: John A. Bishop & Juan Gabriel Rodríguez (ed.),Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, volume 24, pages 121-154, Emerald Publishing Ltd.
    2. Ebru Voyvoda & A. Erinc Yeldan, 2001. "Patterns of Productivity Growth and the Wage Cycle in Turkish Manufacturing," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(4), pages 375-396.
    3. Ahmet Burçin Yereli & İbrahim Erdem Seçilmiş & Alparslan Başaran, 2007. "Shadow Economy And Public Debt Sustainability In Turkey," Economic Annals, Faculty of Economics, University of Belgrade, vol. 52(173), pages 85-104, April - J.
    4. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, University Library of Munich, Germany.
    5. Cem Oyvat, 2010. "Globalization, wage shares and income distribution in Turkey," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 4(1), pages 123-138.
    6. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    7. World Bank, 2010. "Turkey - Country Economic Memorandum Informality : Causes, Consequences, Policies," World Bank Other Operational Studies 2843, The World Bank.
    8. J. Barkley Rosser Jr & Marina V. Rosser & Ehsan Ahmed, 2003. "Multiple unofficial economy equilibria and income distribution dynamics in systemic transition," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(3), pages 425-447.
    9. Aysit Tansel & Elif Oznur Acar, 2016. "The Formal/Informal Employment Earnings Gap: Evidence from Turkey," Research on Economic Inequality,in: Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, volume 24, pages 121-154 Emerald Publishing Ltd.
    10. Aysit Tansel, 2001. "Wage Earners, Self Employed and Gender in the Informal Sector in Turkey," Working Papers 0102, Economic Research Forum, revised 01 Nov 2001.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Informal economy; Income inequality; Trade;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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