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This paper studies the relationship between financial slack and employment formalization by exploiting heterogeneity in industry-level financial dependence in the spirit of Rajan and Zingales (1998). Heterogeneity along with time-series variation in aggregate credit are used to determine industry-level financial slack and measure its relationship to employment formality. Also presented are two basic models of formality and finance as a tool to interpret the results. In contrast to similar studies, the estimates presented here suggest that more financial slack in an industry results in lower formality in that industry. This result is consistent with a model where formal employees and/or informal firms are capital-constrained agents affected by policy. The results are consistent with the notion that financial slack, instead of promoting employment formality, lets employees become informal independents and/or lets informal firms grow. Descriptive statistics on age, schooling and formality as well as estimates from samples conditioned on these variables also support this notion.
Using the Quality of Life Surveys conducted in Colombia in 2003 and 2008, this study finds that policy instruments aimed at easing low-income households’ access to affordable housing such as subsidies and loan guarantees have played a modest role in increasing the use of mortgages as a source of funding. Despite this, subsidies have had a significant impact on both the quality of dwelling and the ... (View publication)
The informal sector is an extensive phenomenon in developing countries. While some of its implications have drawn considerable attention in the literature, one relatively unexplored aspect has to do with the saving patterns of workers and firms and how these might influence aggregate savings and wealth inequality. This paper aims to fill that gap by examining both entrepreneurs’ and workers’ choi ... (View publication)
Conditional cash transfer programs are based on a simple, yet powerful premise: creating adequate incentives today to stimulate the accumulation of human capital in poor families can provide future generations with the opportunity to generate their own higher incomes. Looking at the experience of Progresa-Oportunidades--the oldest such program whose results after 10 years provide valuable lessons- ... (View publication)
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