Title: Lurking in the shadows: the informal sector and government policy
Abstract: This paper develops a dynamic model that sheds light on the evolution of the informal sector. We show how tax rates and enforcement policies influence the size of this sector, and how the sector naturally declines as an economy transitions towards steady state. We find small changes in the tax rate cause measurable changes in the size of informal employment, but modest changes in enforcement have negligible effects. These results suggest that while reductions in the tax rate, combined with increased enforcement, reduce the size of the informal sector, tax rate reductions and penalties for evasion are the most effective.
Publication Year: 2004
Publication Date: 2004-04-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 342
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