Informality and macroeconomic volatility: do credit constraints matter?

Catalina Granda-Carvajal ()

Journal of Economic Studies, 2015, vol. 42, issue 6, 1095-1111

Abstract: Purpose - – The purpose of this paper is to study the implications of borrowing constraints characterizing the informal sector for macroeconomic volatility. Design/methodology/approach - – To this end, the author develops a simple dynamic stochastic general equilibrium model wherein registered activity not only is the basis to determine tax liabilities, but also serves as collateral for securing debts. Such a framework allows for computational experiments to analyze the effect of informality on aggregate fluctuations. Findings - – The experiments show that the credit-constrained informal sector does exert a significant influence on the cyclical volatility of consumption and investment. Originality/value - – There are not many studies addressing the implications of informal economic activities for macroeconomic fluctuations. This paper contributes to the literature by developing a theoretical model showing that credit constraints characterizing these activities might play a non-negligible role in explaining the cyclical volatility of some important aggregates.

Keywords: Tax evasion; Informal economy; Credit constraints; Macroeconomic volatility (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Informality and Macroeconomic Volatility: Do Credit Constraints Matter? (2015)
Working Paper: Informality and Macroeconomic Volatility: Do Credit Constraints Matter? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:42:y:2015:i:6:p:1095-1111

DOI: 10.1108/JES-03-2014-0043

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