We consider an economy with two groups of individuals, rich and poor. A central authority can either directly redistribute income to the poor, or allow for some degree of informality in economic activities by not enforcing property rights. The optimal degree of informality depends upon the...

We analyze theoretically and empirically the impact of the shadow economy on entrepreneurial entry, utilising 1998-2005 individual-level Global Entrepreneurship Monitor data merged with macro level variables. A simple correlation coefficient suggests a positive linear link between the size of...

Guest-worker programs have been providing rapidly growing economies with millions of temporary foreign workers over the last couple of decades. With the duration of stay strictly limited by program rules in most of the host countries and wages paid to guest workers often set at sub-market...

While examining the macroeconomic effects of increased government control of the informal sector, this paper develops a two-sector general equilibrium model featuring matching frictions and worker-firm wage bargaining. Workers search for jobs in both the formal and the informal sector. We...

The underground economy crucially affects growth and unemployment in both developed and developing countries. Nevertheless, this widespread phenomenon does not appear in the basic model for macroeconomic analysis, namely the Aggregate Demand-Aggregate Supply (or simply AD-AS) model. Therefore,...