Measuring the Informal Economy in Latin America and the Caribbean

Abstract

This paper estimates the size of the informal economy for 32 mainly Latin American and Caribbean countries in the early 2000s. Using a structural equation modeling approach, we find that a stringent tax system and regulatory environment, higher inflation, and dominance of the agriculture sector are key factors in determining the size of the informal economy. The results also confirm that a higher degree of informality reduces labor unionization, the number of contributors to social security schemes, and enrollment rates in education.

Keywords: Working Paper, Latin America, Caribbean, Economic conditions, Economic models, Tax systems, Inflation, Agricultural sector, Labor unions, Social security, Education