Heterogeneous firms and the impact of government policy on welfare and informality

We analyze the formality benefits through productivity-enhancing public goods. We document that: benefits from formality matter for firms’ optimal decisions; there is a disconnect between the objectives of maximizing formality versus welfare; this disconnect is mitigated under higher formality benef...

Full description

Saved in:
Bibliographic Details
Published in:Economics letters 2014-07, Vol.124 (1), p.151-156
Main Authors: Mendicino, Caterina, Prado, Mauricio
Format: Article
Language:English
Subjects:
Decision making
Enforcement
Enterprises
Firm heterogeneity
Government policy
Production complementarity
Productivity
Public good
Public goods
Public policy
Regulation
Social policy
Studies
Taxation
Welfare
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We analyze the formality benefits through productivity-enhancing public goods. We document that: benefits from formality matter for firms’ optimal decisions; there is a disconnect between the objectives of maximizing formality versus welfare; this disconnect is mitigated under higher formality benefits. •We model heterogeneous firms choosing optimally to be formal or informal.•We find that the benefits of formality matter for the optimal decision of firms.•There is a disconnect between the objectives of maximizing formality and maximizing welfare.•This disconnect is mitigated under higher benefits of formality.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2014.04.018