{
  "title": "Fiscal Multipliers and Informality",
  "publication": "IMF Working Papers, May 6, 2022",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2022/05/06/fiscal-multipliers-and-informality-517622",
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  "summary": "This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier.",
  "sections": [
    {
      "heading": "Authors and publication",
      "content": "- By Emilio Colombo, Davide Furceri, Pietro Pizzuto, Patrizio Tirelli\n- May 6, 2022\n- IMF Working Papers Series, Working Paper No. 2022/082\n- Pages: 73\n- Issue: 082\n- DOI: https://doi.org/10.5089/9798400209055.001\n- ISBN: 9798400209055\n- ISSN: 1018-5941"
    },
    {
      "heading": "Research question and methodology",
      "content": "- Investigates the role of informality in affecting the magnitude of the fiscal multiplier.\n- Empirical approach: local projections method applied to a panel of 141 countries.\n- Theoretical approach: two-sector new-Keynesian model used to rationalize empirical findings."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Strong negative relationship between the degree of informality and the size of the fiscal multiplier.\n- The negative relationship holds irrespective of:\n  - levels of economic development\n  - institutional quality\n- Robustness: result is robust to additional country characteristics such as:\n  - trade\n  - financial openness\n  - exchange rate regime"
    },
    {
      "heading": "Theoretical mechanisms (model insights)",
      "content": "- Fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector.\n- Reallocation effect increases with the level of informality because:\n  - a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks.\n- Consequence: informality raises the size of the unofficial multiplier.\n- Additional channel: a higher degree of non-separability between public and private goods contributes to lower multipliers in high-informality countries."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Consumption, Economic sectors, Expenditure, Fiscal multipliers, Fiscal policy, Informal economy, National accounts\n- Keywords: Consumption, depreciation rate, DSGE model, Fiscal multiplier, Fiscal multipliers, Global, government spending shock, high-informality country, Informal economy, informality, investment goods producer, local projection methods, role of informality, shadow economy variable, TANK model., unofficial multiplier\n\nIMF Working Paper: \"Fiscal Multipliers and Informality\" (Working Paper No. 2022/082) by Emilio Colombo, Davide Furceri, Pietro Pizzuto, and Patrizio Tirelli, May 6, 2022.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2022/05/06/fiscal-multipliers-and-informality-517622"
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    "Authors: Emilio Colombo, Davide Furceri, Pietro Pizzuto, Patrizio Tirelli",
    "Published: May 6, 2022",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400209055.001",
    "By Emilio Colombo, Davide Furceri, Pietro Pizzuto, Patrizio Tirelli",
    "May 6, 2022",
    "IMF Working Papers Series, Working Paper No. 2022/082",
    "Pages: 73",
    "Issue: 082",
    "DOI: https://doi.org/10.5089/9798400209055.001",
    "ISBN: 9798400209055",
    "ISSN: 1018-5941",
    "Investigates the role of informality in affecting the magnitude of the fiscal multiplier.",
    "Empirical approach: local projections method applied to a panel of 141 countries.",
    "Theoretical approach: two-sector new-Keynesian model used to rationalize empirical findings.",
    "Strong negative relationship between the degree of informality and the size of the fiscal multiplier.",
    "The negative relationship holds irrespective of:",
    "Robustness: result is robust to additional country characteristics such as:",
    "Fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector.",
    "Reallocation effect increases with the level of informality because:",
    "Consequence: informality raises the size of the unofficial multiplier.",
    "Additional channel: a higher degree of non-separability between public and private goods contributes to lower multipliers in high-informality countries.",
    "Subject: Consumption, Economic sectors, Expenditure, Fiscal multipliers, Fiscal policy, Informal economy, National accounts",
    "Keywords: Consumption, depreciation rate, DSGE model, Fiscal multiplier, Fiscal multipliers, Global, government spending shock, high-informality country, Informal economy, informality, investment goods producer, local projection methods, role of informality, shadow economy variable, TANK model., unofficial multiplier",
    "**Working Paper**"
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