What Causes Firms to Hide Output? The Determinants of Informality

Posted: 15 Nov 2005

See all articles by Era Dabla-Norris

Era Dabla-Norris

International Monetary Fund (IMF)

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); World Bank - Development Research Group (DECRG)

Gabriela Inchauste

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

In many developing countries, a significant part of economic activity takes place in the informal sector. Earlier work has examined the determinants of the size of the informal sector, focusing separately on factors such as tax and regulation burden, financial market development, and the quality of the legal system. We revisit this issue by using an integrated dataset which contains rich information on all these aspects. Testing the channels affecting the degree of informality, we find evidence that all previously identified factors indeed play a role in driving informality. In particular, and consistent with the suggested theoretical model, we find support for the significance of the quality of the legal system.

Keywords: informal sector, determinants, institutions

JEL Classification: H26, H32, L25, O17

Suggested Citation

Dabla-Norris, Era and Gradstein, Mark and Inchauste Comboni, Maria Gabriela, What Causes Firms to Hide Output? The Determinants of Informality (August 2005). IMF Working Paper No. 05/160, Available at SSRN: https://ssrn.com/abstract=846265

Era Dabla-Norris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+97 2 8647 2288 (Phone)
+97 2 8647 2941 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

World Bank - Development Research Group (DECRG)

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MSN3-311
Washington, DC 20433
United States

Maria Gabriela Inchauste Comboni

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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