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Financial Dependence, Formal Credit and Informal Jobs: New Evidence from Brazilian Household Data

Author

Listed:
  • Luis Catão
  • Carmen Pagés
  • María Fernanda Rosales

Abstract

This paper examines a much overlooked link between credit markets and formalization: since access to bank credit typically requires compliance with tax and employment legislation, firms are more likely to incur such formalization costs once bank credit is more widely available at lower cost. The relevance of this credit channel is gauged using the Rajan-Zingales measure of financial dependence and a difference-in-differences approach applied to household survey data from Brazil. It is found that formalization rates increase with financial deepening, especially in sectors where firms are typically more dependent on external finance. Also found is that, decomposing shifts in formalization rates into those within each firm size category and those between firm sizes, financial deepening significantly explains the former but not so much the latter. Some key policy implications are derived.

Suggested Citation

  • Luis Catão & Carmen Pagés & María Fernanda Rosales, 2009. "Financial Dependence, Formal Credit and Informal Jobs: New Evidence from Brazilian Household Data," IDB Publications (Working Papers) 1100, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:1100
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. López-Martín Bernabé, 2016. "Informal Sector Misallocation," Working Papers 2016-09, Banco de México.
    2. Corseuil, Carlos Henrique L. & Foguel, Miguel Nathan, 2012. "Economic expansion and increase in labout market formality: A poaching approach," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    3. Pavnesh Kumar, 2013. "BRICS:The rise of sleeping giant," Working papers 2013-6-17, Voice of Research.
    4. Carlos A. Arango-Arango & Héctor M. Zárate-Solano & Nicolás F. Suárez-Ariza, 2017. "Determinantes del Acceso, Uso y Aceptación de Pagos Electrónicos en Colombia," Borradores de Economia 999, Banco de la Republica de Colombia.
    5. Voskoboynikov, I. & Timmer, M.P. & Vries, G.J. de & Erumban, A. A. & Wu H.X., 2011. "Deconstructing the BRICs: Structural Transformation and Aggregate Productivity Growth," GGDC Research Memorandum GD-121, Groningen Growth and Development Centre, University of Groningen.
    6. Néstor Gandelman & Alejandro Rasteletti, 2012. "The Impact of Bank Credit on Employment Formality in Uruguay," IDB Publications (Working Papers) 3964, Inter-American Development Bank.
    7. Catalina Granda & Franz Hamann, 2015. "Informality, Saving and Wealth Inequality," BORRADORES DE ECONOMIA 012621, BANCO DE LA REPÚBLICA.
    8. Veronica Baz & Maria Cristina Capelo & Rodrigo Centeno & Ricardo Estrada, 2010. "Productive Development Policies in Latin America and the Caribbean: The Case of Mexico," Research Department Publications 4693, Inter-American Development Bank, Research Department.
    9. de Vries, Gaaitzen J. & Erumban, Abdul A. & Timmer, Marcel P. & Voskoboynikov, Ilya & Wu, Harry X., 2012. "Deconstructing the BRICs: Structural transformation and aggregate productivity growth," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 211-227.
    10. Gutiérrez, Emilio & Teshima, Kensuke, 2016. "Does household financial access facilitate law compliance? Evidence from Mexico," Economics Letters, Elsevier, pages 120-124.
    11. Ana Maria Ibanez & Catherine Rodriguez & David Zarruk, 2013. "Crime, Punishment, and Schooling Decisions: Evidence from Colombian Adolescents," Research Department Publications IDB-WP-413, Inter-American Development Bank, Research Department.
    12. repec:dgr:rugggd:gd-121 is not listed on IDEAS
    13. Lorena Caro & Arturo Galindo & Marcela Meléndez Arjona, 2012. "Credit, Labor Informality and Firm Performance in Colombia," IDB Publications (Working Papers) 3974, Inter-American Development Bank.
    14. repec:fgv:epgrbe:v:66:n:2:a:4 is not listed on IDEAS

    More about this item

    Keywords

    Financial Sector; Labor; IDB-WP-118;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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