Climate change and technology adoption with a large informal sector
What are the aggregate consequences of policies that target adopting more efficient technologies in an economy with a large informal sector? Using a heterogeneous agents model with endogenous occupation choice between workers and formal and informal entrepreneurs and calibrated to Mexico, we found t...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Elsevier
2025-09-01
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| Series: | Latin American Journal of Central Banking |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2666143824000292 |
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| Summary: | What are the aggregate consequences of policies that target adopting more efficient technologies in an economy with a large informal sector? Using a heterogeneous agents model with endogenous occupation choice between workers and formal and informal entrepreneurs and calibrated to Mexico, we found that in economies with a large informal sector, a decrease in the overall tax rate increases by more the adoption of advanced technologies than in economies with a low informal sector. Furthermore, the burden on government revenues is lower in a highly informal economy. In addition, we find that such policies are more efficient than those that target adopting more advanced technologies because they tackle two distortionary problems: the informality rate and the low adoption of advanced technologies. Such policies become relevant, as we estimate that climate change can reduce aggregate production by up to 6.6% in the long-run. |
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| ISSN: | 2666-1438 |