American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Firms, Informality, and Development: Theory and Evidence from Brazil
American Economic Review
vol. 108,
no. 8, August 2018
(pp. 2015–47)
Abstract
This paper develops and estimates an equilibrium model where heterogeneous firms can exploit two margins of informality: (i) not register their business, the extensive margin; and (ii) hire workers "off the books," the intensive margin. The model encompasses the main competing frameworks for understanding informality and provides a natural setting to infer their empirical relevance. The counterfactual analysis shows that once the intensive margin is accounted for, firm and labor informality need not move in the same direction as a result of policy changes. Lower informality can be, but is not necessarily associated with higher output, TFP, or welfare.Citation
Ulyssea, Gabriel. 2018. "Firms, Informality, and Development: Theory and Evidence from Brazil." American Economic Review 108 (8): 2015–47. DOI: 10.1257/aer.20141745Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E26 Informal Economy; Underground Economy
- H26 Tax Evasion and Avoidance
- J46 Informal Labor Markets
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements