. The industry equilibrium is compared to one in which informality is prohibited. With relatively high product demand, the … effect of entrepreneurs being free to choose informality is that consumer surplus and total employment are reduced, but … also show that informality may be a built-in stabilizer or destabilizer. …

labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of … informality. …

We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of … informality, we use measures of the extent of tax evasion, the extent of minimum wage non-compliance, and the size of the informal … expansion of informality: tax revenue maximization, and poverty alleviation among workers. …

results give a rationale to informality-reducing policies. …