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
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...
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
  • 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
  • Funder: National Science Foundation (NSF)
  • Project Code: 0350770
  • Funding stream: Directorate for Social, Behavioral & Economic Sciences | Division of Social and Economic Sciences
20 references, page 1 of 2

[1] Almeida, R. and Z. Bianchini, 1998, “Aspectos de Amostragem da Pesquisa de Economia Informal Urbana”, Texto para Discusso No.89, IBGE.

[2] Almeida, R. and P. Carneiro, 2005, “Enforcement of Regulation, Informal Labor and Firm Performance”, IZA Discussion Paper No.1759.

[3] Bound, J., C. Brown and N. Mathiowetz, 2005, “Measurement Error in Survey Data in Handbook of Econometrics, V.5., J. Heckman and E. Leamer (eds.), Amsterdam: North-Holland.

[4] De Soto, H., 1989, The Other Path: the Invisible Revolution in the Third World, New York: Harper and Row.

[5] De Soto, H., 2000, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, New York: Basic Books.

[6] Emran, M. and J. Stiglitz, 2005, “On Selective Indirect Tax Reform in Developin Countries”, Journal of Public Economics, 89, pp.599-623. [OpenAIRE]

[8] Fortin, B., N. Marceau and L. Savard, 1997, “Taxation, Wage Controls and the Informal Sector”, Jounal of Public Economics, 66, pp.293-312.

[9] Friedman, E., S. Johnson, D. Kaufmann and P. Zoido-Lobaton, 2000, “Dodging the grabbing hand: the determinants of unofficial activity in 69 countries”, Journal of Public Economics, 76, pp.459-493.

[10] Intituto Brasileiro de Geografia e Estat´ıstica (IBGE), 2003, Sistema de Contas Nacionais - Brasil, S´erie Relat´orios Metodol´ogicos, V.24.

[11] Johnson, S., D. Kaufmann and A. Shleifer, 1997, “The Unofficial Economy in Transition”, Brookings Papers on Economic Activity, No.2.

[12] Junqueira, J. and J. Monteiro, 2005, “Outgoing the shadows: estimating the impact of bureaucracy and tax reduction on formality”, Working Paper, PUC-Rio.

[13] Loayza, N., 1996, “The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America”, Carnegie-Rochester Conference Series on Public Policy, 45, pp.129-162.

[14] Lucas, R., 1978, “On the Size Distribution of Business Firms”, Bell Journal of Economics, 9, pp.508-523.

[15] McKinsey and Co., 2005, Eliminando as barreiras ao crescimento econˆomico e `a economia informal no Brasil.

[17] Rausch, J.E., 1991, “Modelling the Informal Sector Formally”, Journal of Development Economics, 35, pp.33-47.

20 references, page 1 of 2
Powered by OpenAIRE Research Graph
Any information missing or wrong?Report an Issue