On the Political Economy of the Informal Sector and Income Redistribution

Ozan Hatipoglu and Gulenay Ozbek

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we analyze a general equilibrium model in which agents choose to be employed in formal or in the informal sector. The formal sector is taxed to provide income subsidies and the level of redistribution is determined endogenously through majority voting. We explore how the demand for redistribution determined by majority voting interacts with the incentive to work in the untaxed informal market. We also investigate how different levels of the informal sector wage can explain simultaneous changes in the size of the informal sector and level of redistribution. The model is simulated to produce qualitative results to illustrate the differences between economies with different distributional features. The model accounts for the different sizes of informal sector and income redistribution in Mexico and United States.

Keywords: Informal Sector; Income Redistribution; Median Voter (search for similar items in EconPapers)
JEL-codes: D3 H20 J20 (search for similar items in EconPapers)
Date: 2008-03-20
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: On the political economy of the informal sector and income redistribution (2011)
Working Paper: On the Political Economy of the Informal Sector and Income Redistribution (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:7857

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