The Dynamics of the Informal Economy
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 coexist, 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.
|Date of creation:||01 Feb 2010|
|Date of revision:|
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