In this paper, we use a Dynamic Real Business Cycle (RBC) Model to examine how the presence of the Informal Sector (IS) reduces income inequality when the quality of institutional infrastructure is low. Utilizing panel data for 16 Transition countries we show that there is a negative relationship between the size of the IS and the level of income inequality. We also show that ICT reduces income inequality and that it causes the IS to have a positive effect on the income inequality if investment in ICT is above 1.2% of GDP. We also consider implications for policymaking.
Can the Informal Sector Reduce Income Inequality?
DELL'ANNO, Roberto;
2009
Abstract
In this paper, we use a Dynamic Real Business Cycle (RBC) Model to examine how the presence of the Informal Sector (IS) reduces income inequality when the quality of institutional infrastructure is low. Utilizing panel data for 16 Transition countries we show that there is a negative relationship between the size of the IS and the level of income inequality. We also show that ICT reduces income inequality and that it causes the IS to have a positive effect on the income inequality if investment in ICT is above 1.2% of GDP. We also consider implications for policymaking.File in questo prodotto:
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