Fiscal policy and informality in Colombia
This paper studies how informality reacts to fiscal policy instruments. We develop an analytical framework with a dual labor market with frictions, where the formal sector, in contrast to the informal sector, produces with technology using capital and pay taxes. We calibrate the model for the Colombian economy and quantify to what extent a decrease […]
Job polarization and the informal labor market
This paper analyses the incidence of job polarization in developing and emerging countries, where a substantial fraction of the urban labor force works in the informal sector. I build a general equilibrium model with informality and endogenous occupational choice. Workers in the informal sector do not pay taxes, are less productive, and have the same […]
Optimal monetary policy in a dual labor market: the role of informality
In this paper I analyze the optimal monetary policy in emerging countries whose labor markets are mainly characterized by the presence of a large informal sector. I develop a closed economy model with nominal price and wage rigidities, search and matching frictions and a dual labor market. A formal one characterized by matching frictions, and […]
Optimal monetary policy with informality: A first pass
Our paper aims to unveil how much the monetary policy shall deviate from the flexible-price allocation in an economy with a large informal sector. First of all, the presence of variable taxes in the formal sector generates an inflation bias under discretionary policy which increases with the size of the informal sector. Secondly, we find […]