The journey to formality: How credit market access shapes informal workers' choices

Alina Malkova and Klara Peter

Journal of Comparative Economics, 2025, vol. 53, issue 3, 683-703

Abstract: We analyze how credit market accessibility affects the transition of informal workers to the formal sector in Russia. Formal lenders determine credit limits based on verified income and incentivize informal workers to formalize their income in order to qualify for a loan. Better credit accessibility increases the likelihood of transitioning from informal to formal work. It also decreases tax evasion and raises the share of income being declared for tax purposes. Findings are robust across different model specifications, including dynamic multinomial logit model and event study approach. Simulated interventions suggest that more bank competition and a shorter distance to banks reduce the size of the informal sector and increase the tax-declared share of income.

Keywords: Credit market accessibility; Informal labor market; Unofficial employment; Distance to bank; Labor mobility; Tax evasion; Dynamic multinomial logit; Russia (search for similar items in EconPapers)
JEL-codes: G21 G51 J20 J62 O17 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:53:y:2025:i:3:p:683-703

DOI: 10.1016/j.jce.2025.05.003

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