THE INFORMAL SECTOR AND THE MACROECONOMY - A COMPUTABLE GENERAL EQUILIBRIUM APPROACH FOR PERU

This paper examines the macroeconomic implications of the informal sector in Peru through the use of a structuralist, computable general equilibrium model. The lack of formal sector employment drives informal activity while formal and informal output are treated as imperfect substitutes. Simulations show that informal activity reduces the Keynesian multiplier and complicates distributional issues as the income of formal workers and informal producers can move in opposite directions. A final simulation highlights the limitations of strategies designed to promote the informal sector. Total output and income of informal producers decline following an increase in productivity in these processes.