Published in:Roxana Gutiérrez-Romero. (2020) Inequality, Persistence of the Informal Economy, and Club Convergence. Centre for Globalisation Research (CGR) working paper series ; 103
Extent:
1 Online-Ressource (77 p)
Language:
English
DOI:
10.2139/ssrn.3592049
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 30, 2020 erstellt
Description:
Several new dualistic models have re-examined the causes of the informal economy and have made testable predictions about the long-lasting role of inequality. We test these predictions using historical indicators of inequality, dating back to the 1700s, and data on the informal economy across 138 countries over the 1991–2015 period. We find that past levels of inequality are the most salient factors explaining the size of the informal economy, while improving credit access, reducing tax burden and business costs play a minor role. These results are robust to using alternative inequality measures from various years during the 1700–1992 period, using instrumental variables, and four alternative measurements of the informal economy. Moreover, there is no evidence that the informal economy is converging to the same steady state. Instead, there is convincing evidence of club convergence. Countries with the highest levels of initial inequality are diverging from those that started with lower levels of inequality and those who have made significant redistribution. Results suggest the importance of early conditions in determining the persistence of the dual economy with important policy implications