Economics at your fingertips  

Do Public Sector Employment Reductions Promote Informality?

Antonis Adam and Thomas Moutos

No 10614, CESifo Working Paper Series from CESifo

Abstract: Using information from all IMF conditionality programs from 1990 to 2018, we implement a dynamic Augmented Inverse Probability Weighting Regression Adjustment approach to examine the effects of programs, including public sector dismissals, on the size of the shadow economy. The estimated effect five years after the policy intervention indicates an increase in the share of the shadow economy to GDP by about 1.3 percentage points. More importantly, this change involves a sizable reallocation of private economic activity from its formal to its informal part, i.e., the size of the formal private sector relative to the size of the informal sector decreases by seven percentage points. We interpret these findings through the lens of a two-sector model in which there is interdependence between worker incomes and the allocation of product demand across the formal and informal sectors.

Keywords: shadow economy; public sector employment; IMF programs; informality (search for similar items in EconPapers)
JEL-codes: J45 O17 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dev, nep-iue and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
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:

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().

Page updated 2024-02-17
Handle: RePEc:ces:ceswps:_10614