Informality in Paraguay: Macro-Micro Evidence and Policy Implications

November 24, 2015

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Mauricio Vargas. Informality in Paraguay: Macro-Micro Evidence and Policy Implications, (USA: International Monetary Fund, 2015) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Paraguay’s economy features a high degree of informality. Based on different estimation approaches, informal activity represents more than half of total employment in Paraguay, a higher rate than those observed in its Latin American and the Caribbean peers. Theoretical and empirical considerations support the notion that regulations, enforcement policies, and government effectiveness are the ultimate determinants of informality. In all of these areas Paraguay performs weakly compared to regional peers. Using household and enterprise surveys, we find that Paraguay’s informal sector absorbs the most vulnerable workers but affects negatively medium and large firms in the formal sector. DSGE model simulations suggest that the optimal combination of policies to reduce informality is not straightforward, and needs to reflect the specific circumstances and objectives of the country.

Subject: Economic sectors, Income inequality, Informal economy, Informal employment, Labor, National accounts, Personal income

Keywords: Central Asia, Enterprise survey, Firm, Firm size criterion, Firms in Paraguay, Firms in the service, Income inequality, Informal Economy, Informal employment, Informal firm, Labor Regulations, Personal income, Sub-Saharan Africa, Tax System, Worker, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/245
Stock No:

WPIEA2015245
ISBN:

9781513529271
ISSN:

1018-5941

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