Public Financing with Financial Frictions and Underground Economy by Andrés Erosa

Join us for this weeks Macroeconomics Research Seminar, Autumn Term 2022.

Professor Andrés Erosa from Carlos III University of Madrid will present this weeks Macroeconomics seminar: Public Financing with Financial Frictions and Underground Economy.

Abstract

What are the aggregate effects of informality in a financially constrained economy? We develop and calibrate an entrepreneurship model to data on matched employer-employee from both formal and informal sectors in Brazil. The model distinguishes between informality on the business side and the hiring of informal workers by formal businesses. Policies that reduce business informality increase aggregate output by 10.8%, TFP by 6.6%, and tax revenue by 33.2%. On the contrary, output and TFP decrease when policies reduce the intensive margin of informality, underscoring that the informal economy can play a positive role in an economy with financial frictions.

This seminar will be held on campus in the Economics Common Room at 4pm on Wednesday 12 October. This event is open to all levels of study and is also open to the public. To register your place, please contact the seminar organisers.

This event is part of the Macroeconomics Research Seminar Series.