A Classical Theory of the Informal Sector

Bill Gibson and Bruce Kelley

The Manchester School of Economic & Social Studies, 1994, vol. 62, issue 1, 81-96

Abstract: A major focus of the debate on the informal sector is whether this sector constitutes a 'seedbed of capitalist growth' or simply a reserve army of unemployed. This paper develops a classical model where informal processes may or may not turn formal in the long run. It is further shown that if the state taxes capitalists in order to maintain informal sector incomes, the surplus is likely to fall as formal sector output grows. Thus, the authors conclude that while the informal sector does not necessarily lead to capitalist development, it may serve as a social buffer in its absence. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:62:y:1994:i:1:p:81-96

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