Good and Bad Equilibria with the Informal Sector

Bouwe Dijkstra

Journal of Institutional and Theoretical Economics (JITE), 2011, vol. 167, issue 4, 668-685

Abstract: We examine whether an economy can have a bad (small or no formal sector, high taxes) as well as a good (small or no informal sector, low taxes) equilibrium. The government maximizes a combination of instantaneous welfare and the rate of decline of the informal sector. When the instantaneous welfare component only contains formal-sector welfare, multiple equilibria can occur if the elasticity of average to marginal cost for the public good is less than one. More regard for the informal sector leads to a worse equilibrium and to a higher prevalence of multiple equilibria.

JEL-codes: H26 J24 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/good-and-ba ... 101628jite-2011-0008 (text/html)
Fulltext access is included for subscribers to the printed version.

Related works:
Working Paper: GOOD AND BAD EQUILIBRIA WITH THE INFORMAL SECTOR
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: https://EconPapers.repec.org/RePEc:mhr:jinste:urn:sici:0932-4569(201112)167:4_668:gabewt_2.0.tx_2-b

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().