Procurement of Consulting Services for Implementation of a Prospective Module about the Informal Economy in the IFs Model, in order to Adapt it to the Case of Peru

Although the existence of informal economies in countries around the world has both benefits and costs for societies, the analytical consensus is that costs generally outweigh the benefits. Yet in such analysis, even conceptualization and measurement of the informal economy is challenging. And we are unaware of any significant quantitative studies that forecast the size of the informal share of labor forces and GDP in coming years, much less of attempts to dynamically explore the implications for countries of alternative development patterns with respect to that size. Through our empirical cross-country analysis, we found a very strong relationship across countries between the size of the informal economy in terms of either labor and GDP shares, on the one hand, and deep and generally quite slowly changing developmental variables such as GDP per capita and the formal educational level of adults, on the other hand. These deep drivers are not highlighted in much of the literature, in part because analysis often has relatively short-term temporal focus. Yet those variables are critical to us because of our long-term forecasting horizon. Our empirical analysis also identified variables with strong explanatory power among more proximate and potentially somewhat faster changing (and often policy-relevant) variables, such as the business climate, tax rates, corruption level, the extent of social support systems, and investments in economic restructuring such as R&D expenditures.Overall, this report outlines the building and initial use of the only analytical system that we believe exists for forecasting the future of the size of informal economies and exploring alternative scenarios. It suggests the very substantial benefits, which grow progressively larger over time, of national efforts to reduce informality