What, if anything, should be done about the informal economy in developing countries? I study optimal penalties vis-à-vis informal firms in a simple capital accumulation model under three different government objectives: maximize formalization, maximize tax revenue from formalizing informal firms, and maximize welfare. A general conclusion, for all objectives, is that low productivity informal firms should be left alone. Higher productivity informal firms should instead face positive penalties. As the three objectives lead to differences in the range and severity of penalties towards such firms, however, the study also highlights the importance of discussing the appropriate policy objective vis-à-vis informality.
About the speaker
Anders Fredriksson is a researcher at the University of São Paulo, Brazil, at the Center for Organization Studies (CORS). He has a PhD in Economics from the Institute for International Economic Studies (IIES) at Stockholm University, Sweden. His main research area is Development Economics and Public Policy, with a focus on bureaucracy and bureaucracy reform in Latin America, but also the Informal Economy, Corruption, Public Finance and Operations Research. Prior to doing his PhD, he worked in different roles at Ericsson, mainly in Latin America.
Date: 15 March 2018
Time: 12:00 - 13:00