Arbeitspapier
Optimum Size of the Informal Credit Market - A Political Economy Perspective
Informality of markets is largely perceived as undesirable. Yet, ample evidence suggests that the informal sector contributes substantially in terms of income and employment in the entire developing world. In this paper, tax evaded income is invested in the informal credit market which in turn determines demand for labor in the informal sector and hence income of informal workers. Political authority cares about lost tax revenue due to evasion but is also concerned with politically adverse consequence of lower income of informal labor due to lack of investment in the informal sector. This trade off determines an optimum size of the informal credit market and the informal economy. The size is sensitive and non–monotonic with respect to changes in the tax rate and size of the labor force, depending on the tax revenue effect of tax policy, labor demand political sensitivity of the govt. towards lower wage in the informal sector.
- Language
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Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 9252
- Classification
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Wirtschaft
Positive Analysis of Policy Formulation and Implementation
Business Taxes and Subsidies including sales and value-added (VAT)
Tax Evasion and Avoidance
Fiscal Policies and Behavior of Economic Agents: Firm
Health: Government Policy; Regulation; Public Health
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Other Economic Systems: Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
- Subject
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tax evasion
underreporting of income
informal credit market
political economy perspective
- Event
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Geistige Schöpfung
- (who)
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Marjit, Sugata
Mishra, Suryaprakash
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
-
2021
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Marjit, Sugata
- Mishra, Suryaprakash
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2021
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