Front Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 2 https://isni.org/isni/0000000404811396, International Monetary Fund
  • | 3 https://isni.org/isni/0000000404811396, International Monetary Fund

Front Matter Page

Institute for Capacity Department

Contents

  • 1. Introduction

  • 2. Model

    • 2.1. Households

    • 2.2. Firms

    • 2.3. Financial intermediaries

    • 2.4 Government

    • 2.5. Agent’s decisions problems

    • 2.6. Equilibrium

  • 3. Calibration

  • 4. Results

    • 4.1. The Benchmark Equilibrium

    • 4.2. The effects of a financial markets reform in Brazil

    • 4.3. Development and financial frictions: a discussion

  • 5. Conclusion

  • Figures

  • Figure 1: Inspecting the mechanism. Note: the picture depicts optimal decisions for agents with the lowest (first column), the middle (second column) and the highest (third column) abilities. The first row depicts the evolution across ages for capital (red discontinuous line) and savings decisions (blue continuous lines). Occupational choices are reported in the second row, where 0 identify workers, 1 informal entrepreneurs and 2 formal entrepreneurs. All parameters are set to their calibrated values.

  • Figure 2: Perfect credit markets and individual decisions. Note: the picture depicts optimal decisions for agents with the lowest (first column), the middle (second column) and the highest (third column) abilities. The first row depicts the evolution of capital (red discontinuous line) and savings (blue continuous lines) across the lifespan. Occupational choices are instead reported in the second row, where 0 identifies workers, 1 informal entrepreneurs and 2 the formal entrepreneurs. Perfect credit markets are obtained by setting λ = ∞ while holding all the remaining parameters at their calibrated values.

  • Figure 3: Development and financial frictions in the long-run

  • Figure 4: Testing for the non-linear effect of fiscal market frictions on informality (panel A) and GDP per capita (panel B). The vertical dashed line refers to the threshold level for the credit to GDP ratio of 60.8%.

  • Figure 5: The effects of a flat tax reform for different degrees of financial frictions. Note: financially developed economies are identified by setting parameter λ = 2.5, implying a credit to GDP ratio of around 117%. Results from a flat tax reform are obtained by setting parameter τ = 0 while keeping all other parameters at their calibrated values. For comparison, the picture reports results from financial deepening (black columns), and the effects when both policies are taken simultaneously (white columns).

  • Tables

  • Table 1: Calibration Results: Parameter Values

  • Table 2: Calibration Results: Targeted Moments

  • Table 3: Experiment Results. Removing financial frictions

  • Table 4: Experiment Results. No Informal Production. Removing financial frictions

  • Table 5: Testing for the non-linear effects. Regression coefficients.

  • Appendixes

  • Appendix

    • A.1. Computational Appendix

    • A.2. Empirical Appendix

Financial Frictions and Firm Informality: A General Equilibrium Perspective
Author: Luis Franjo, Nathalie Pouokam, and Francesco Turino