Abstract: This paper reviews methodologies integrating the informal sector in social accounting matrices and CGEs. A
series of theoretical models are developed to show how this can be done. The models are organized according
to whether the presence of the informal sector is due to capital limitations, functional informality, versus
juridical informality, which may arise as a competitive strategy on the part of entrepreneurs. The goal is to
offer to policymakers some perspectives on how the informal sector could be incorporated into formal models
of the economy.
Abstract: This paper presents a dynamic computable general equilibrium model for the State of Tabasco,
Mexico, calibrated to a social accounting matrix. It analyzes the energy reform in
Mexico and its effects on supply and demand in the skilled and unskilled labor force. The
paper focuses on two simulations: one called “la reforma”, where the federal government
returns part of the oil sector’s profits to the education sector in the form of investment, results
in more equality, less poverty and less employment bias of skilled labor. And the other
simulation named “aguas profundas” that depends on the recovery of the price of crude oil
until the value justifies the investment in sophisticated methods of oil extraction; the results
offer more profitability, productivity and expansion, but also implies higher the risk on its
dependence on the future price of oil.
Abstract: The purpose of this paper is to deepen the understanding of informality, and related efforts governments
must to take to cope with large and persistent informal sectors. Is the informal sector a source of growth and
employment or a drain on the fiscus that undermines social safety nets? This paper questions the “formal
sector bias” present in much of the policy discussions surrounding informality. A theoretically grounded
distinction between “functional” and “juridical” informality is drawn and applied to subcontracting as an
illustrative case. The broad conclusion of the paper is not supportive of public intervention to formalize
the informal sector but rather suggests that tolerating the informal sector might well improve economic
performance as measured by output and employment.