publication . Article . Preprint . 2007

The Informal Sector, Second Version

Aureo de Paula; Jose A. Scheinkman;
Open Access
  • Published: 27 Aug 2007 Journal: SSRN Electronic Journal (eissn: 1556-5068, Copyright policy)
  • Publisher: Elsevier BV
Abstract
This paper investigates the determinants of informal economic activity. We present two equilibrium models of informality and test their implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. In the first model there is a single industry and informal firms face a higher cost of capital and a limitation on size. As a result informal firms are smaller and have a lower capital-labor ratio. When education is an imperfect proxy for ability, we show that the interaction of the manager’s education and formality has a positive correlation with fi...
Subjects
ACM Computing Classification System: ComputingMilieux_LEGALASPECTSOFCOMPUTING
free text keywords: Informal Sector, VAT, Tax Avoidance, jel:H2, jel:H3, jel:K4
Related Organizations
Funded by
NSF| Long Run Risk
Project
  • Funder: National Science Foundation (NSF)
  • Project Code: 0718407
  • Funding stream: Directorate for Social, Behavioral & Economic Sciences | Division of Social and Economic Sciences
,
NSF| Research in Financial Economics
Project
  • Funder: National Science Foundation (NSF)
  • Project Code: 0350770
  • Funding stream: Directorate for Social, Behavioral & Economic Sciences | Division of Social and Economic Sciences
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