Informality in Paraguay: Macro-Micro Evidence and Policy Implications

Jose P Mauricio Vargas

No 2015/245, IMF Working Papers from International Monetary Fund

Abstract: Paraguay’s economy features a high degree of informality. Based on different estimation approaches, informal activity represents more than half of total employment in Paraguay, a higher rate than those observed in its Latin American and the Caribbean peers. Theoretical and empirical considerations support the notion that regulations, enforcement policies, and government effectiveness are the ultimate determinants of informality. In all of these areas Paraguay performs weakly compared to regional peers. Using household and enterprise surveys, we find that Paraguay’s informal sector absorbs the most vulnerable workers but affects negatively medium and large firms in the formal sector. DSGE model simulations suggest that the optimal combination of policies to reduce informality is not straightforward, and needs to reflect the specific circumstances and objectives of the country.

Keywords: WP; firm; informal firm; firm size criterion; enterprise survey; worker; Informal Economy; Labor Regulations; Tax System; firms in the service; firms in Paraguay; Informal employment; Personal income; Income inequality; Central Asia; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 33
Date: 2015-11-24
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Citations: View citations in EconPapers (1)

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