Description

This paper investigates the implications of lowering formal regulations in labor and product
 markets on informality and macroeconomic outcomes in India. We estimate a DSGE model
 with an informal sector, and rigidities in the formal labor and product markets. Along with
 increasing GDP and employment, deregulation also leads to lower informality and greater
 product market competition. Slow reallocation of resources between the formal and informal
 sectors leads to some adverse impacts in the short run that can be minimized by
 implementing a combined package of reforms. These impacts are shown to be greater in an
 economy with a larger informal sector.

More publications in this series: Working Papers

More publications by: Rahul Anand ; Purva Khera