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<p>Informality is a major issue in Latin America and the Caribbean (LAC). The literature estimating its size has been primarily limited to worldwide models applied to the region. This paper proposes a Multiple Indicators Multiple Causes (MIMIC) model using a data set composed of 41 countries in LAC. The model introduces income inequality and total factor productivity in addition to traditional variables. The results indicate that income inequality is a key determinant of IE, both in terms of statistical significance and measurement. Compared to a model using data from 188 countries, some causal variables have an impact ten times greater on the level of informality, highlighting the importance of tailor-made data set selection when modeling IE with MIMIC.</p>

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The impact of inequality on the informal economy in Latin America and Caribbean with a MIMIC model

  • 期刊论文

  • 发表日期：

    2025年3月17日

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  • Marcos Takanohashi,
  • Marcel Ribeiro,
  • Friedrich Schneider

摘要

Informality is a major issue in Latin America and the Caribbean (LAC). The literature estimating its size has been primarily limited to worldwide models applied to the region. This paper proposes a Multiple Indicators Multiple Causes (MIMIC) model using a data set composed of 41 countries in LAC. The model introduces income inequality and total factor productivity in addition to traditional variables. The results indicate that income inequality is a key determinant of IE, both in terms of statistical significance and measurement. Compared to a model using data from 188 countries, some causal variables have an impact ten times greater on the level of informality, highlighting the importance of tailor-made data set selection when modeling IE with MIMIC.