{
  "title": "Size Dependent Policies, Informality and Misallocation",
  "publication": "IMF Working Papers, August 2, 2018",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2018/08/02/size-dependent-policies-informality-and-misallocation-46125",
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  "summary": "We examine the effect of size-dependent policies in developing economies by focusing on a set of regulations that are applicable to firms with 20 or more formal employees in Peru.",
  "sections": [
    {
      "heading": "Research question and scope",
      "content": "- Examine the effect of size-dependent policies in developing economies by focusing on a set of regulations that are applicable to firms with 20 or more formal employees in Peru.\n- Extend the framework proposed by Garicano et al. (2016) to model and estimate the Peruvian economy and perform counterfactual exercises."
    },
    {
      "heading": "Firm behavioral responses (as identified)",
      "content": "- Firms can adjust to the regulations by:\n  - reducing their size,\n  - shifting employment composition, or\n  - splitting into subunits that fall below the regulatory threshold.\n- These actions are consistent with observed discontinuities in the distributions of firm size and employment composition."
    },
    {
      "heading": "Main findings",
      "content": "- Size-dependent regulations are costly for the economy, especially in the presence of labor market rigidities.\n- Size-dependent regulations lead to lower aggregate wages, profits, and output.\n- Access to informal labor does not mitigate the economic impact of the size-dependent regulations, as the increase in informal employment is largely offset by a decline in formal employment.\n\n---\n\n Content in this bundle\n\n- Size Dependent Policies, Informality and Misallocation, WP/18/179, August 2018\n  - Size Dependent Policies, Informality and Misallocation, WP/18/179, August 2018 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Size Dependent Policies, Informality and Misallocation, WP/18/179, August 2018 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2018/08/02/size-dependent-policies-informality-and-misallocation-46125"
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    "[Markdown version](/en/publications/wp/issues/2018/08/02/size-dependent-policies-informality-and-misallocation-46125/index.md)",
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    "Authors: Era Dabla-Norris, Laura Jaramillo, Frederico Lima, Alexandre Sollaci",
    "Published: August 2, 2018",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484372340.001",
    "Examine the effect of size-dependent policies in developing economies by focusing on a set of regulations that are applicable to firms with 20 or more formal employees in Peru.",
    "Extend the framework proposed by Garicano et al. (2016) to model and estimate the Peruvian economy and perform counterfactual exercises.",
    "Firms can adjust to the regulations by:",
    "These actions are consistent with observed discontinuities in the distributions of firm size and employment composition.",
    "Size-dependent regulations are costly for the economy, especially in the presence of labor market rigidities.",
    "Size-dependent regulations lead to lower aggregate wages, profits, and output.",
    "Access to informal labor does not mitigate the economic impact of the size-dependent regulations, as the increase in informal employment is largely offset by a decline in formal employment.",
    "**Size Dependent Policies, Informality and Misallocation, WP/18/179, August 2018**"
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