Informality, Saving and Wealth Inequality

Catalina Granda-Carvajal () and Franz Hamann

No 12621, Borradores de Economia from Banco de la Republica

Abstract: The informal sector is an extensive phenomenon in developing countries. While some of its implications have drawn considerable attention in the literature, one relatively unexplored aspect has to do with the saving patterns of workers and firms and how these might influence aggregate savings and wealth inequality. In this paper, we aim to fill that gap by examining both entrepreneurs' and workers' choices regarding whether to perform informally and regarding asset accumulation. Specifically, we build an occupational choice model wherein saving is primarily motivated by precautionary considerations. The model features labor and capital market segmentation, and is calibrated to replicate the saving rates, wealth inequality and composition of occupations across the formal and informal sectors of Colombia. Computational experiments further allow us to analyze the effects of highly debated formalization policies on wealth redistribution and promotion of saving and entrepreneurship. Alternative frameworks are finally considered.

Keywords: Informality; wealth inequality; saving; occupational choice models. (search for similar items in EconPapers)
JEL-codes: E21 E26 O17 (search for similar items in EconPapers)
Pages: 41
Date: 2015-03-11
New Economics Papers: this item is included in nep-ent, nep-iue and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Informality, Saving and Wealth Inequality (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000094:012621

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