In this paper we develop and simulate a political economy model to produce qualitative results to illustrate the differences between economies with different distributional features. We analyze a general equilibrium model in which agents choose to be employed in formal or in the informal sector given their productivity levels. The formal sector is then taxed to provide income subsidies and the level of redistribution is determined endogenously through majority voting. The model accounts for the different sizes of informal sector and income redistribution in Turkey, Mexico and United States.
- informal sector median voter income redistribution political economy
Available at: http://works.bepress.com/hatipoglu/2/