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Informal Sector, Productivity, And Tax Collection

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Executive Summary

The informal sector is a prominent characteristic of many developing countries. Most of the literature has focused on understanding the determinants of informality. The connection between the informal sector and economic development is, nonetheless, relatively less understood. One of the most important determinants of informality is the tax enforcement quality of a country which, some authors argue, additionally distorts firms' decisions and creates inefficiency. In this paper, the author assesses the quantitative importance of the effects of incomplete tax enforcement on aggregate output and productivity.

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