Informality in Paraguay

Download or read book Informality in Paraguay written by Mr.Mauricio Vargas and published by International Monetary Fund. This book was released on 2015-11-24 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Paraguay’s economy features a high degree of informality. Based on different estimation approaches, informal activity represents more than half of total employment in Paraguay, a higher rate than those observed in its Latin American and the Caribbean peers. Theoretical and empirical considerations support the notion that regulations, enforcement policies, and government effectiveness are the ultimate determinants of informality. In all of these areas Paraguay performs weakly compared to regional peers. Using household and enterprise surveys, we find that Paraguay’s informal sector absorbs the most vulnerable workers but affects negatively medium and large firms in the formal sector. DSGE model simulations suggest that the optimal combination of policies to reduce informality is not straightforward, and needs to reflect the specific circumstances and objectives of the country.