Income Inequality and the Informal Economy in Transition Economies

Posted: 28 Aug 2000

See all articles by J. Barkley Rosser, Jr.

J. Barkley Rosser, Jr.

James Madison University - Economics Program

Marina V. Rosser

James Madison University - College of Business

Ehsan Ahmed

James Madison University - Economics Program

Abstract

For transition economies, income inequality is positively correlated with the share of output in the informal economy. Increases in income inequality also tend to be correlated with increases in the share of output produced in the informal economy. These hypotheses are supported significantly by empirical data for 16 transition economies between 1987 to 1989 and 1993 to 1994. Various causal mechanisms may operate in both directions, an increasingly large informal economy causing more inequality due to falling tax revenues and weakened social safety nets, and increasing inequality causing more informal activity as social solidarity and trust decline.

JEL Classification: O15, P21

Suggested Citation

Rosser, Jr., J. Barkley and Rosser, Marina V. and Ahmed, Ehsan, Income Inequality and the Informal Economy in Transition Economies. Available at SSRN: https://ssrn.com/abstract=228549

J. Barkley Rosser, Jr. (Contact Author)

James Madison University - Economics Program ( email )

United States
540-568-3212 (Phone)
540-568-3010 (Fax)

Marina V. Rosser

James Madison University - College of Business ( email )

Harrisonburg, VA 22807
United States

Ehsan Ahmed

James Madison University - Economics Program ( email )

United States

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