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Inequality, Institutions, and Informality

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  • Alberto Chong

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  • Mark Gradstein

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

  • Alberto Chong & Mark Gradstein, 2004. "Inequality, Institutions, and Informality," Research Department Publications 4377, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4377
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    Cited by:

    1. Prabir De, 2010. "Governance, Institutions, and Regional Infrastructure in Asia," Working Papers id:3029, eSocialSciences.
    2. 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.
    3. Alonso-Ortiz, Jorge & Leal Ordonez, Julio, 2013. "The Elasticity of Informality to Taxes and Transfers," MPRA Paper 49568, University Library of Munich, Germany.
    4. 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.

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