Does Regulatory Quality Reduce Informal Economy? A Theoretical and Empirical Framework

Cristian Barra and Anna Papaccio ()
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Anna Papaccio: University of Salerno

Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 2024, vol. 172, issue 2, No 8, 543-567

Abstract: Abstract Italy is characterised by a significant dualistic economy, which also includes an extensive underground sector. The aim of this study is to analyse the relationship between the quality of legislation and irregular employment in Italy. Our contribution consists of two components: the theoretical modelling of the impact of regulatory quality on the informal economy and the empirical validation of the predictions of the theoretical model using data from the Italian region between 2004 and 2019. The results confirm the theoretical and empirical arguments in favour of the need for laws to curb the informal sector. The regions with the highest institutional standards tend to have a lower percentage of irregular workers that fosters and encourages the legality of the labor market. Some robustness tests back up the main conclusions which show how important following rules is for strengthening the internal economy and for lowering the number of illegal workers.

Keywords: Regulatory quality; Informal economy; Informal labour market; O17; E26; J46 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11205-024-03319-6

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