Many developing countries pursue policies that treat large and small firmsdifferently. For example, large firms may be subject to a value added tax whilesmall firms are explicitly exempted. Moreover, governments often find itimpractical to collect taxes from the smallest enterprises; this may...

We assess the consequences of increases in the scale of tax and transfer programs in the context of a model with idiosyncratic productivity shocks and incomplete markets. We contrast the outcomes for both hours worked and welfare relative to the results obtained in a stand-in household model,...