Discussion Paper, Turkish Economic Association 2005/7
This paper elaborates on the evolution of the informal sector vis-à-vis the evolution of agricultural and formal sectors in a stylized developing country economy in process of growth. The analytical contribution of this essay extends the Ramsey theory of growth into a framework that includes an informal sector, and household preferences that display Engel effects in agricultural and informally produced goods. Besides showing that the informal sectors importance diminishes over time as the economy grows, the results from the model demonstrate that a country can successfully reduce its informal employment by reducing tax on employment in the formal sector.
Informal Sector Economic Growth Employment tax Middle East Turkey