Infrastructure Accumulation in Developing Countries: the Role of the Informal Sector
|Title||Infrastructure Accumulation in Developing Countries: the Role of the Informal Sector|
|Publication Type||Working Paper|
|Year of Publication||2021|
|Authors||Addessi, W, Delogu, M|
|Keywords||Development, Informality, Infrastructure, Optimal Taxation|
In this paper, we study the optimal labor income taxation to finance infrastructure in developing countries characterized by high informality. We show that the presence of labor market segmentation, induced by a binding minimum wage, affects the optimal level of taxation/infrastructure and influences how the economy reacts to policy changes in terms of both the size of the informal sector and the income distribution among high- and low- skilled workers.