Estimating the size of the informal economy in Latin America and Brazil
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Data
2025-05-09
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Ribeiro, Marcel Bertini
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This thesis consists of three essays on estimating the size of the informal economy in Brazil and in Latin American countries. The informal economy is an important issue in the region and the existing literature on estimating its size is limited. The first article uses the MIMIC (Multiple Indicators Multiple Causes) econometric tool to estimate the size of the informal economy in Latin American countries, using a panel of 41 countries in the region. A model in which family income inequality, represented by the GINI index, plays an important role as one of the factors contributing to the variation in a country’s informal economy. The results found are compatible with the literature, with the informal economy in Brazil estimated at 41% of GDP in 2019. Running the model with different datasets, we found that some of the variables used have up to a ten-fold impact on the estimated level of informality, highlighting the importance of using specific data sets when modeling the informal economy with MIMIC. The second text confirms the thesis of the first article, but with a different approach. Still using MIMIC, instead of using a panel of countries, as is common in the literature, we decided to use a panel of data from the states of the federation. The main purpose of this proposal is to compensate for fixed effects by using data only from Brazil. We have no reference to similar studies in the literature. With this modeling, we observed an estimate of the informal economy in Brazil in 2019 of 36%, five percentage points lower than our estimate in the first article, and four percentage points lower than the World Bank estimate. Finally, in the third article, we used a DSGE model to calibrate the size of the informal economy in Brazil and to simulate the impact of fiscal shocks on the economy. To do this, we use a model proposed by Orsi et al. (2014) that models the formal and informal economies, taking into account both informal workers and informal firms. This article shows the impact of fiscal shocks on the informal economy, as well as firm productivity shocks. The estimated size of the informal economy in Brazil is calibrated to 36.7%.
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Informal Economy (IE) MIMIC (Multiple Indicators, Multiple Causes) Shadow economy Underground economy Non-observed economy Inequality Informality Tax burden Quality of state institutions Regulations Governance GINI coefficient TFP Latin America and Caribbean (LAC) DSGE (Dynamic Stochastic General Equilibrium) Economia informal MIMIC (Múltiplos Indicadores, Múltiplas Causas) Economia paralela Economia subterrânea Economia não observada Desigualdade Carga de impostos Qualidade das instituições do Estado Regulação Governança Coeficiente de GINI América Latina e Caribe