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Informality over the life-cycle

Author

Listed:
  • Julien Albertini

    () (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)

  • Anthony Terriau

    () (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)

Abstract

In developing countries, informality is mainly concentrated on younger and older workers. In this paper, we propose a dual labor market theory that highlights how frictions and taxation in the formal sector as well as educational choices interact to shape the informality rate over the life-cycle. We develop a life-cycle model with search frictions, skill heterogeneities, and endogenous educational choices. We carry out a numerical analysis and show that our model reproduces remarkably well the life-cycle patterns of informality, non-employment and formal employment in Argentina. We analyze several public policies and show that an educational grant reduces both informality and non-employment and may be fully financed by the extra tax revenues generated by the increase in formal employment and wages. Lowering taxes may achieve similar results but is detrimental for the government budget, in the case of Argentina, despite increasing the base on which they are levied.

Suggested Citation

  • Julien Albertini & Anthony Terriau, 2018. "Informality over the life-cycle," Working Papers 1834, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:1834
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    References listed on IDEAS

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    Cited by:

    1. Julien Albertini & Arthur Poirier & Thepthida Sopraseuth, 2019. "Informal Work along the Business Cycle: Evidence from Argentina," Working Papers halshs-02112004, HAL.

    More about this item

    Keywords

    Informality; Search and Matching; Life-cycle; Public policy; Laffer curve;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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