Does Corruption Affect the Informal-Formal Sector Income Gap? Evidence from Brazil

32 Pages Posted: 2 May 2016 Last revised: 25 Apr 2019

See all articles by Jamie Bologna Pavlik

Jamie Bologna Pavlik

Texas Tech University - Department of Agricultural and Applied Economics

Amir B. Ferreira Neto

Florida Gulf Coast University

Date Written: April 23, 2019

Abstract

This paper investigates the relationship between political corruption and the informal-formal sector income gap. We focus on a sample of 476 randomly selected municipalities in Brazil, and combine individual level Census data with measures of municipal corruption. We first document the upward pressure corruption puts on the informal-formal income gap. We then utilize a measure of mismanagement by governmental officials as an instrument for corruption to show that these results are robust to plausibly exogenous variation in corruption. When disaggregating the results, we show that the effect of corruption is heterogeneous across industries, with a significant impact on the construction industry in particular.

Keywords: corruption, informal economy, shadow economy, dual labor market theory

JEL Classification: D73, O17, E26, J46

Suggested Citation

Bologna Pavlik, Jamie and Borges Ferreira Neto, Amir, Does Corruption Affect the Informal-Formal Sector Income Gap? Evidence from Brazil (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=2773038 or http://dx.doi.org/10.2139/ssrn.2773038

Jamie Bologna Pavlik (Contact Author)

Texas Tech University - Department of Agricultural and Applied Economics ( email )

Suite 167, 2625 Memorial Circle
TTU Administration
Lubbock, TX 79409
United States

Amir Borges Ferreira Neto

Florida Gulf Coast University ( email )

Lutgert College of Business
10501 FGCU Boulevard South
Fort Myers, FL 33965-6565
United States
33965-6565 (Fax)

HOME PAGE: http://www.amirneto.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
100
Abstract Views
739
rank
311,673
PlumX Metrics