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Informality over the life-cycle

Julien Albertini () and Anthony Terriau ()

No 1834, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In developing countries, informality is mainly concentrated on younger and older workers. In this paper, we propose a dual labor market theory that highlights how frictions and taxation in the formal sector as well as educational choices interact to shape the informality rate over the life-cycle. We develop a life-cycle model with search frictions, skill heterogeneities, and endogenous educational choices. We carry out a numerical analysis and show that our model reproduces remarkably well the life-cycle patterns of informality, non-employment and formal employment in Argentina. We analyze several public policies and show that an educational grant reduces both informality and non-employment and may be fully financed by the extra tax revenues generated by the increase in formal employment and wages. Lowering taxes may achieve similar results but is detrimental for the government budget, in the case of Argentina, despite increasing the base on which they are levied.

Keywords: Informality; Search and Matching; Life-cycle; Public policy; Laffer curve (search for similar items in EconPapers)
JEL-codes: E26 O17 J46 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-iue, nep-lab and nep-mac
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

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ftp://ftp.gate.cnrs.fr/RePEc/2018/1834.pdf (application/pdf)

Related works:
Working Paper: Informality over the life-cycle (2019)
Working Paper: Informality over the life-cycle (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1834

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