Public policies promoting the informal economy: effects on incomes, employment and growth in Burkina Faso

This paper aims to analyze the impact on incomes, employment and growth, of public policies enhancing the access to capital and liquidity for the informal economy in Burkina Faso. Specifically it assesses the direct effects of these public policies on the informal economy outcomes, and the indirect effects on the formal sector, the agricultural sector as well as the economic growth. For that purpose, policy shocks are simulated through the PEP standard single-country and static Computable General Equilibrium (CGE) model adapted to the structure of the Social Accounting Matrix (SAM-2008) developed by the IFPRI for Burkina Faso. Our results show that a 10% increase in the stock of capital in the informal sector results in a paradoxical contraction of the informal sector and the formal sector while the agricultural sector expands. The employment rises in the informal sector whereas it drops in the formal sector. The incomes improve marginally for the own account workers and the farmers while it decrease for the public and private salaried workers. Finally the GDP at basic prices shrinks weakly. Likewise a 10% increase in public transfers for the informal households enhances only the incomes of the latter but causes an eviction effect on the public investment leading to negative spillovers on all the sectors, the incomes and the GDP.