Autori
Rojas, Luis
DOLIGALSKI, Pawel

Titolo
Optimal redistribution with a shadow economy
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2016 - Fascicolo: 11 - Pagina iniziale: 1 - Pagina finale: 53

We examine the constrained efficient allocations in the Mirrlees (1971) model with an informal sector. There are two labor markets: formal and informal. The planner observes only income from the formal market. We show that the shadow economy can be welfare improving through two channels. It can be used as a shelter against tax distortions, raising the efficiency of labor supply, and as a screening device, benefiting redistribution. We calibrate the model to Colombia, where 58% of workers are employed informally. The optimal share of shadow workers is close to 22% for the Rawlsian planner and less than 1% for the Utilitarian planner. The optimal tax schedule is very di?erent then the one implied by the Mirrlees (1971) model without the informal sector.




Esportazione dati in Refworks (solo per utenti abilitati)