Informality, financial development and macroeconomic volatility

In a dynamic stochastic general equilibrium model with heterogeneous agents, this note shows that beyond a certain low level, financial development is associated with higher relative consumption–income volatility in the presence of a working capital constraint. Informality on the other hand lowers relative consumption volatility by weakening the working capital requirement channel of financial development.

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Year of publication:	2013
Authors:	Mitra, Shalini
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 120.2013, 3, p. 454-457
Publisher:	Elsevier
Subject:	Informality \| Tax evasion \| Heterogeneous firms \| Borrowing constraints \| Consumption volatility \| Working capital

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Type of publication:	Article
Classification:	E26 - Informal Economy; Underground Economy ; E32 - Business Fluctuations; Cycles ; H26 - Tax Evasion ; O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010681775