Informality over the life-cycle

Julien Albertini and Anthony Terriau ()
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Anthony Terriau: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2018
New Economics Papers: this item is included in nep-dge and nep-iue
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01957491v1
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Informality over the life-cycle (2019)
Working Paper: Informality over the life-cycle (2019)
Working Paper: Informality over the life-cycle (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01957491

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