Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279365 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10614
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Using information from all IMF conditionality programs from 1990 to 2018, we implement a dynamic Augmented Inverse Probability Weighting Regression Adjustment approach to examine the effects of programs, including public sector dismissals, on the size of the shadow economy. The estimated effect five years after the policy intervention indicates an increase in the share of the shadow economy to GDP by about 1.3 percentage points. More importantly, this change involves a sizable reallocation of private economic activity from its formal to its informal part, i.e., the size of the formal private sector relative to the size of the informal sector decreases by seven percentage points. We interpret these findings through the lens of a two-sector model in which there is interdependence between worker incomes and the allocation of product demand across the formal and informal sectors.
Subjects: 
shadow economy
public sector employment
IMF programs
informality
JEL: 
O17
J45
Document Type: 
Working Paper
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