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Inequality, Institutions, and Informality

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  • Gradstein, Mark
  • Chong, Alberto E.

Abstract

This paper presents theory and evidence on the determinants of the size of the informal sector. We propose a simple theoretical model in which the informal sector's size is negatively related to institutional quality and positively related to income inequality. These predictions are then empirically validated using different proxies of the size of the informal sector, income inequality, and institutional quality. The results are shown to be robust with respect to a variety of econometric specifications.

Suggested Citation

  • Gradstein, Mark & Chong, Alberto E., 2004. "Inequality, Institutions, and Informality," IDB Publications (Working Papers) 1918, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:1918
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    Cited by:

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    3. Szczepaniak, Małgorzata & Geise, Andrzej & Bariyah, Nurul, 2022. "Impact of institutional determinants on income inequalities in Indonesia during the Era Reformasi," Journal of Asian Economics, Elsevier, vol. 82(C).
    4. Neelum Nigar, 2015. "The Composite Impact of Institutional Quality and Inequality on Economic Growth," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 779-791.
    5. Alonso-Ortiz, Jorge & Leal Ordonez, Julio, 2013. "The Elasticity of Informality to Taxes and Transfers," MPRA Paper 49568, University Library of Munich, Germany.
    6. Joseph Keneck Massil, 2016. "Institutions, théories du changement institutionnel et déterminant de la qualité des institutions: les enseignements de la littérature économique," Working Papers hal-04141607, HAL.
    7. Rawaa Harati, 2014. "Firms Informality: A Model and Empirical Evidence for Lebanon," Working Papers 883, Economic Research Forum, revised Dec 2014.
    8. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, University Library of Munich, Germany.
    9. Joseph Keneck Massil, 2016. "Institutions, théories du changement institutionnel et déterminant de la qualité des institutions: les enseignements de la littérature économique," EconomiX Working Papers 2016-4, University of Paris Nanterre, EconomiX.
    10. Mahieddine Adnan Ghecham, 2017. "The Impact of Informal Sector on Income Distribution: Could Concentration of Income be Explained by the Size of Informal Sector?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 594-600.

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