Financial Frictions and Firm Informality: a General Equilibrium Perspective
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http://hdl.handle.net/10045/121457
Title: | Financial Frictions and Firm Informality: a General Equilibrium Perspective |
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Authors: | Franjo, Luis | Pouokam, Nathalie | Turino, Francesco |
Research Group/s: | Análisis Económico |
Center, Department or Service: | Universidad de Alicante. Departamento de Fundamentos del Análisis Económico |
Keywords: | Informality | Financial frictions | Taxation | Entrepreneurship | Productivity | Misallocation |
Knowledge Area: | Fundamentos del Análisis Económico |
Issue Date: | 31-Jan-2022 |
Publisher: | Oxford University Press |
Citation: | The Economic Journal. 2022, 132(645): 1790-1823. https://doi.org/10.1093/ej/ueac010 |
Abstract: | This paper assesses the extent to which financial development and informality are related, and how this relation translates into differences in GDP and TFP across countries. To this end, we develop a quantitative life-cycle general equilibrium model of occupational choice with imperfect tax enforcement, in which informal entrepreneurs have no access to credit and face an endogenous probability of being caught for tax evasion. Our quantitative analysis shows that the degree of financial frictions of a country is crucial in shaping the firm’s incentives to evade taxation, a feature that, in the aggregate, results into a non-linear relationship between financial development and both size of informality and GDP per capita. We test these model’s predictions with cross-country data and find supporting evidence in favour of both non-linearities. |
Sponsor: | Luis Franjo and Francesco Turino thank the Spanish Ministerio de Economía y Competitividad − grant PID2019-111208GB-I00/AEI/10.13039/501100011033 − for financial support. Luis Franjo acknowledges financial support from the Cátedra Germán Bernácer. |
URI: | http://hdl.handle.net/10045/121457 |
ISSN: | 0013-0133 (Print) | 1468-0297 (Online) |
DOI: | 10.1093/ej/ueac010 |
Language: | eng |
Type: | info:eu-repo/semantics/article |
Rights: | © 2022 Royal Economic Society. Published by Oxford University Press |
Peer Review: | si |
Publisher version: | https://doi.org/10.1093/ej/ueac010 |
Appears in Collections: | INV - Análisis Económico - Artículos de Revistas |
Files in This Item:
File | Description | Size | Format | |
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Franjo_etal_2022_EconJ_accepted.pdf | Accepted Manuscript (acceso abierto) | 606,26 kB | Adobe PDF | Open Preview |
Franjo_etal_2022_EconJ_final.pdf | Versión final (acceso restringido) | 690,14 kB | Adobe PDF | Open Request a copy |
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