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Informality, Saving and Wealth Inequality

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  • Catalina Granda
  • Franz Hamann

Abstract

The informal sector is an extensive phenomenon in developing countries. While some of its implications have drawn considerable attention in the literature, one relatively unexplored aspect has to do with the saving patterns of workers and firms and how these might influence aggregate savings and wealth inequality. In this paper, we aim to fill that gap by examining both entrepreneurs' and workers' choices regarding whether to perform informally and regarding asset accumulation. Specifically, we build an occupational choice model wherein saving is primarily motivated by precautionary considerations. The model features labor and capital market segmentation, and is calibrated to replicate the saving rates, wealth inequality and composition of occupations across the formal and informal sectors of Colombia. Computational experiments further allow us to analyze the effects of highly debated formalization policies on wealth redistribution and promotion of saving and entrepreneurship. Alternative frameworks are finally considered.

Suggested Citation

  • Catalina Granda & Franz Hamann, 2015. "Informality, Saving and Wealth Inequality," Borradores de Economia 12621, Banco de la Republica.
    • Handle: RePEc:col:000094:012621
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    Cited by:

    1. Alfredo Schclarek & Mauricio Caggia, 2017. "Household saving and labor informality: the case of Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 20(3), pages 052-080, December.
    2. Francesco Grigoli & Alexander Herman & Klaus Schmidt-Hebbel, 2017. "Is Private Saving in Latin America and the Caribbean Different?," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1255-1280, November.
    3. Bande, Roberto & Riveiro, Dolores & Ruiz, Freddy, 2021. "Does Uncertainty Affect Saving Decisions of Colombian Households? Evidence on Precautionary Saving," MPRA Paper 106771, University Library of Munich, Germany.
    4. Stephen Dobson & Carlyn Ramlogan-Dobson & Eric Strobl, 2020. "Savings and the informal sector," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(2), pages 217-234, March.
    5. Montoya Ramírez, Jaime Horacio, 2019. "Determinantes del ahorro interno en Colombia: un acercamiento desde las Cuentas Nacionales Trimestrales para el período 1994-2017," Borradores Departamento de Economía 17521, Universidad de Antioquia, CIE.
    6. García-Suaza, A & Gómez, M & Jaramillo, F, 2021. "Fiscal policy and informality in Colombia," Documentos de trabajo - Alianza EFI 19416, Alianza EFI.
    7. Flabbi, Luca & Tejada, Mauricio M., 2023. "Are informal self-employment and informal employment as employee behaviorally distinct labor force states?," Economics Letters, Elsevier, vol. 231(C).
    8. Brian Reinbold & Yi Wen, 2020. "Is the Phillips Curve Still Alive?," Review, Federal Reserve Bank of St. Louis, vol. 102(2), pages 121-144, May.
    9. Carlos A. Arango-Arango & Héctor M. Zárate-Solano & Nicolás F. Suárez-Ariza, 2017. "Determinantes del Acceso, Uso y Aceptación de Pagos Electrónicos en Colombia," Borradores de Economia 999, Banco de la Republica de Colombia.
    10. Granda, Catalina & Hamann, Franz & Tamayo, Cesar E., 2019. "Credit and saving constraints in general equilibrium: A quantitative exploration," Journal of Development Economics, Elsevier, vol. 140(C), pages 302-319.
    11. Finamor, Lucas, 2024. "Labor Market Informality, Risk, and Insurance," MPRA Paper 121662, University Library of Munich, Germany.
    12. Catalina Granda Carvajal & Franz Hamann, 2020. "On the Aggregate Implications of Removing Barriers to Formality," Review, Federal Reserve Bank of St. Louis, vol. 102(2), pages 203-220, May.
    13. repec:idb:brikps:7677 is not listed on IDEAS

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    More about this item

    Keywords

    Informality; wealth inequality; saving; occupational choice models.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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