We propose an origination-and-contingent-distribution model of banking, in which liquidity demand by short-term investors (banks) can be met with cash reserves (inside liquidity) or sales of assets (outside liquidity) to long-term investors (hedge funds and pension funds). Outside liquidity is a...

We test implications of a simple equilibrium model of informality using a survey of 48,000 small firms in Brazil. In the model, agent's ability to manage production differ and informal firms face a higher cost of capital and limitation on size, although these informal firms avoid tax payments....

This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000 small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other...