Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69422
Authors: 
Lehmann, Hartmut
Muravyev, Alexander
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper Series, Forschungsinstitut zur Zukunft der Arbeit 7035
Abstract: 
This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality.
Subjects: 
labor market institutions
informality
macroeconometric regressions
transition countries
Latin America
JEL: 
E24
J21
J42
O17
P20
Document Type: 
Working Paper

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