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Informality in Paraguay: Macro-Micro Evidence and Policy Implications
Author:
Mr. Mauricio Vargasnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 245
Language:
English
Publication Date:
24 Nov 2015
DOI:
https://doi.org/10.5089/9781513529271.001
ISBN:
9781513529271
ISSN:
1018-5941
Pages:
33
Keywords:
WP; firm; informal firm; firm size criterion; enterprise survey; worker; Informal Economy; Labor Regulations; Tax System; firms in the service; firms in Paraguay; Informal employment; Personal income; Income inequality; Central Asia; Sub-Saharan Africa
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Paraguay’s economy features a high degree of informality. Based on different estimation approaches, informal activity represents more than half of total employment in Paraguay, a higher rate than those observed in its Latin American and the Caribbean peers. Theoretical and empirical considerations support the notion that regulations, enforcement policies, and government effectiveness are the ultimate determinants of informality. In all of these areas Paraguay performs weakly compared to regional peers. Using household and enterprise surveys, we find that Paraguay’s informal sector absorbs the most vulnerable workers but affects negatively medium and large firms in the formal sector. DSGE model simulations suggest that the optimal combination of policies to reduce informality is not straightforward, and needs to reflect the specific circumstances and objectives of the country.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2015: Issue 245