The Dynamics of the Informal Economy

Roxana Gutiérrez-Romero

No 2010-07, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: 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 coexists, 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.

Keywords: informal economy; occupational choice and inequality (search for similar items in EconPapers)
JEL-codes: D31 K4 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cmp, nep-dev, nep-ent, nep-law and nep-ore
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:csa:wpaper:2010-07

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