EconPapers    
Economics at your fingertips  
 

Income Distribution and the Size of the Informal Sector

Diego Winkelried ()

Development and Comp Systems from EconWPA

Abstract: This paper studies the role of income distribution as a determinant of the size of the informal sector in an economy by relying on a channel whereby inequality affects the behaviour of aggregate demand and thus influences the incentives a firm has to become informal. It is further postulated that income distribution affects the response of the informal sector to different fiscal policies, either demand or supply-orientated. The main findings are that high inequality leads to a large informal sector, and that redistribution towards the middle class decreases the size of the informal sector and increases the capacity of fiscal instruments to reduce informality. Empirical evidence for Mexican cities is provided.

Keywords: Income distribution; market size; informal sector. (search for similar items in EconPapers)
JEL-codes: D31 O11 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2005-12-06
Note: Type of Document - pdf; pages: 26
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://econwpa.repec.org/eps/dev/papers/0512/0512005.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpdc:0512005

Access Statistics for this paper

More papers in Development and Comp Systems from EconWPA
Series data maintained by EconWPA ().

 
Page updated 2017-08-07
Handle: RePEc:wpa:wuwpdc:0512005