On the Effect of Transport Subsidies on Informality Rates


Ana Isabel Moreno-Monroy and Héctor M. Posada


In this paper, we investigate the relationship between intra-city location choices and informality. In our spatial search model, formal workers commute every day to the Central Business District (CBD), where all formal activity is centralized.  We allow informal workers to choose their commuting fre- quency knowing that there are two informal sub-sectors: a CBD-based one and a home-based one. A segmented city emerges in equilibrium, with formal workers residing in the centre, and informal workers residing in the periphery.  We use this model to compare the impact and efficiency of four policy options: a subsidy on formal firms’ hiring-costs and a transport subsidy for either all workers, formal workers, or informal workers. We find that a transport subsidy targeted at informal workers is undesirable. We also find that a hiring-costs subsidy is superior to transport subsidies.

Texto para discussão
prueba_v2.pdf1.97 MB
prueba_v2.pdf1.97 MB


Escolas FGV

Acompanhe na rede