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The Dynamics of the Informal Economy

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  • Roxana Gutiérrez-Romero

Abstract

This paper analyses the factors that give rise to the existence of the informal economy and how it evolves over time. Using an occupational-choice model the paper shows that at early stages of development, informal and formal markets coexists, but in the long-run the size of the informal economy can decline depending on the initial distribution of wealth. The model shows that the higher the initial wealth inequality the larger the size of the informal economy and the higher the wealth inequality will be in the long run. The paper calibrates the model using numerical simulations.

Suggested Citation

  • Roxana Gutiérrez-Romero, 2010. "The Dynamics of the Informal Economy," CSAE Working Paper Series 2010-07, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2010-07
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    File URL: https://ora.ox.ac.uk/objects/uuid:4527b336-2ba5-434b-ad7a-d9c8eae6e574
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    Cited by:

    1. Florentina XHELILI KRASNIQI & Rahmije MUSTAFA TOPXHIU, 2012. "The Informal Economy in Kosovo: Characteristics, Current Trends and Challenges," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 2(2), pages 1-12, April.
    2. Aziz N. Berdiev & James W. Saunoris, 2019. "On the Relationship Between Income Inequality and the Shadow Economy," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 224-249, April.
    3. Alicia Puyana & José Romero, 2010. "Informalidad y dualismo en la economía mexicana," Serie documentos de trabajo del Centro de Estudios Económicos 2010-04, El Colegio de México, Centro de Estudios Económicos.

    More about this item

    Keywords

    informal economy; occupational choice and inequality;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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