بخش غیررسمی و مالیات بر اشتغال: بررسی تعادل عمومی پویا

This paper elaborates on the evolution of the informal sector vis-à-vis the evolution of agricultural and formal sectors in a developing country economy in process of growth. The analytical contribution of this essay extends the Ramsey theory of growth into a framework that includes an informal sector and household preferences that display Engel effects in agricultural and in informally produced goods. Besides showing that the informal sector's importance diminishes over time as the country's economy grows, the results from the model demonstrate that a country can successfully reduce its informal employment by reducing tax on employment in the formal sector.

Until the early 1970s, less developed countries were often characterized by dual economies, with a traditional agricultural sector and a more modern, urban sector. The dichotomy within the urban sector (traditional urban versus modern urban) in these countries was considered to be a temporary phenomenon by most authors, that is, the traditional urban employment was considered to be a temporary mode of employment for the unskilled agricultural labor en route to a permanent modern urban employment (Lewis, 1954; Ranis and Fei, 1961; Todaro, 1969). However, studies first by Hart (1973) on urban employment in Ghana and later by the International Labour Office (1973) redefined the traditional urban sector as the ‘informal’ sector, and argued that in less developed countries, informal sector employment was a permanent rather than a temporary source of employment, and should be treated separately from employment in the ‘formal’ sector. Following these studies, the analysis of dualism between formal and informal sectors, particularly analyzing the informal sector in less developed countries, has gained much momentum, and created a sizeable literature.1 In the literature, several terms have been used to describe informal economic activity around the world: unofficial, shadow, hidden, underground, illegal, unrecorded, unreported, parallel, and black. Although there may be nuances in these terms, they all have a common denominator: ‘those engaged in (such) activities circumvent, escape, or are excluded from the institutional system of rules, rights, regulations and enforcement penalties that governs those agents engaged in formal production and exchange’ (Feige, 1990). Particularly in less developed and developing countries, informal economic activity, or the term ‘informal sector’ has additional connotations: this term usually describes a small scale, traditional industry sector, characterized by ease of entry, reliance on indigenous resources, family ownership of enterprises, labor intensive technologies, skills acquired outside the formal school system, and unregulated and competitive markets (Bromley, 1978). Several empirical studies (including Schneider and Enste, 2000; Loayza, 1996; Friedman et al., 2000; World Bank, 2002) have found a large informal sector to be an important characteristic of less developed and developing economies. Schneider and Enste compare the size of the informal economy in 76 countries between 1989 and 1993, and find that on average, in developing countries (Africa, Central and South America, Asia), the size of the informal economy is between 35% and 44% of official GDP, in transition countries (former Soviet Union and Eastern Europe), between 21% and 35% of official GDP, whereas in OECD countries, it is merely about 15%. Loayza estimates the size of the informal sector in Latin America to be 39% of official GDP on average for the early 1990s, ranging from 18% in Chile to 66% in Bolivia. In his famous study on Lima, Peru, de Soto (1989) estimates the size of the informal sector to be 39% of official GDP in the early 1980s, and to grow to 61% in year 2000. He has also reported that some 61% of total work hours have been devoted to informal economic activity during the early 1980s in Lima. These findings, among others, imply a strong negative relationship between the level of economic development and the size of the informal sector. Furthermore, a negative relationship can be observed between GDP per capita (US$, PPP adjusted) and the share of informal urban employment in total urban employment (as an indicator of informal activity) amongst developing countries, as depicted by Fig. 1 for the 1995–1999 average. Full-size image (27 K) Fig. 1. GDP per capita vs. informal employment. Source: World Bank (2003) and World Bank WDI Online. Figure options Using a dynamic general equilibrium framework, this study demonstrates that the size of informal activity diminishes as a country accumulates capital and grows towards its long run equilibrium. A multi-sector dynamic general equilibrium model with consumer optimization is developed in which consumers have non-homothetic preferences. Production occurs in three sectors, agricultural, formal and informal,2 employing the three factors of production owned by consumers, i.e. land, labor, and capital. Production sectors are differentiated from each other by the type of the goods they produce, and also by their relative factor intensities. One identifying feature of the formal sector is that firms in this sector face regulations in the form of employment taxes; agricultural and informal sector firms evade such regulatory measures, which can be regarded as a common characteristic of developing countries. As the economy transitions into the long run equilibrium, in addition to the supply-side effects implied by relative factor intensities, the demand side of the economy is also expected to have a substantial impact on how the economy proceeds. In the literature, theoretical studies linking the informal sector to the macroeconomy include Kelley (1994), Loayza (1996), and Ihrig and Moe, 2001 and Ihrig and Moe, 2004, among the few. In particular, Kelley investigates the macroeconomic implications of the informal sector using a multi-sector computable general equilibrium model for Peru for 1985. Kelley traces the role of the informal sector in the macro adjustment process and also conversely, examines how the informal sector reacts to changing macroeconomic conditions. By its very nature, Kelley's model is static, and does not capture how the informal sector evolves through time in an economy. Within the framework of an endogenous growth model based on the AK-model, Loayza shows that informal activity arises when governments with limited enforcement capacity impose excessive taxes and regulations on the economy. As pointed out in Ihrig and Moe (2004), Loayza's study, being an AK-model, does not depict the transitional dynamics of the informal sector detected in actual economies. Ihrig and Moe3 construct a homogenous-consumption-good, inter-temporal model in which agents in the economy choose to allocate time between working in the capital intensive-formal and the labor intensive-informal sectors. In this model, formal sector firms pay taxes to the government, while informal sector firms pay taxes only when they are caught by the authorities. They demonstrate that as an economy grows, holding all else constant, the informal sector employment and thus the size of the informal sector activity naturally diminishes,4 as observed in actual data. Furthermore, this study indicates that tax policies play a more crucial role than enforcement policies in attracting people out of the informal sector into the formal sector, and raising the standard of living in the long run. In contrast to Ihrig and Moe,5 our study incorporates heterogeneous goods and an endogenous price for the informal sector good. As a result, we are able to trace the evolution of the informal sector vis-à-vis the other sectors in the economy depending also on the movement of the relative prices as capital accumulates and as the output level in each sector changes. In fact, Ihrig and Moe6 point out in their study that having heterogeneous goods and endogenous prices would indeed affect the evolution of the informal sector as relative prices change due to capital accumulation over time, but they do not show this result explicitly. Our model is applied to and solved for the Turkish economy starting at the year 2000.7 The Turkish economy is of special interest as it includes a significant amount of informal sector activity, and a considerable fraction of employment in Turkey is indeed informal. Moreover, following the economic crisis in 2001, the Turkish economy is currently undergoing structural reforms in order to solve its deep-rooted problems. Such reforms are expected to continue and pick up pace as membership negotiations with the European Union continue to evolve. Undoubtedly, one of the challenges that the Turkish policymakers will face during this reform phase will be reducing the size of informal activity and informal employment. The next section introduces the theoretical model and its basic properties, and additionally defines and characterizes the competitive equilibrium for the model economy. In Section 3, the case of Turkey is presented. Section 4 applies the model to Turkey, exhibiting how the economy evolves over time, and how this process is affected by policy changes, particularly by a reduction in employment tax rates. Section 5 concludes.

In developing countries, the informal sector is a large and significant part of economic life. The importance of the informal sector in terms of quality of institutions, employment, and also the effectiveness of economic policies has recently attracted many economists to conduct both empirical and theoretical research on the subject. However, what has been lacking in the literature thus far is a study of the informal sector with the inclusion of the household demand perspective, and the study of the evolution of the informal sector vis-à-vis other sectors of the economy, in the process of economic growth as capital accumulates. In this study, highlighting the demand-side of the economy, we introduce a three-sector growth model with production in agricultural, formal and informal sectors: households prefer to devote a larger share of their expenditures on formal goods, and less on agricultural and informal goods as their incomes increase. This structure of the preferences aptly summarizes the behavior of the various groups of consumers in developing countries: as income increases, consumers prefer less to buy from informal markets such as street bazaars and outdoor markets, and more from supermarkets and shopping malls. Although it can also be affected by numerous other factors, such as the quality of institutions, it is well observed that the size of the informal sector is closely related to income per capita. Within the framework of the model, we are able to trace the evolution of the three production sectors over time, as an economy accumulates capital and grows. In addition to tracing the evolution in each of the sectors, the model allows us to explain the evolution by studying the effects of factor movements between the sectors, movements in endogenous prices, and the demand patterns of the households. Finally, it is shown that holding all else constant, a developing country can successfully reduce the fraction of informally employed in total employment by reducing labor costs in the formal sector, and thus promote employment and production in this sector.