 Government interventions and the size of the informal economy. The case of Iran (1971–2007)Abbas Khandan and Masoud Nili Journal of Economic Policy Reform, 2014, vol. 17, issue 1, 71-90 Abstract: Literature on the informal economy can mainly be divided into two different contrasting theories. According to the dual labor market theory (DLM), which considers the informal economy as a spare sector providing jobs for formally unemployed resources, unpleasant economic situations force people to act informally. Legalists, on the other hand, blame government interventions such as minimum wages or price control policies for pushing rent-seeking firms toward the shadows. This study using an Error-correction Multi-Indicators Multi-Causes (EMIMIC) model, a systematic method consisting of structural and measurement equations, shows that these two theories are complementary rather than substitutes for one another. While long-term trends are explained by legalists, DLM theory is also suitable for explaining short term changes. Iran’s economy in the period 1971–2007, which was characterized by government interventions, is chosen for this purpose. These interventions are measured by Principal Component Analysis. Finally, an index of the size of Iran’s informal economy is also reported. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:jecprf:v:17:y:2014:i:1:p:71-90 Ordering information: This journal article can be ordered from DOI: 10.1080/17487870.2013.780396 Access Statistics for this article Journal of Economic Policy Reform is currently edited by Dr Judith Clifton More articles in Journal of Economic Policy Reform from Taylor and Francis Journals |
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