Constraints or Opportunities?: Labor Informality and Public Investment in Shaping Debt Limits
Juan Camilo Méndez-Vizcaíno,
Nicolás Moreno-Arias
Abstract:This paper presents a comprehensive framework examining fiscal sustainability in developing economies. It integrates public capital, labor informality, and global liquidity shocks in a two-sector DSGE model for a small open economy, revealing their intricate interplay and nonlinear impact on State-Dependent Debt Limits. The framework highlights the significance of initial public capital levels and efficiency in determining the benefits of public investment. High informality rates erode the tax base, compromisi… Show more
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