Causes and consequences of informality in Peru

Based on a legal definition of informality, this paper examines the causes of this phenomenon in general, focusing in particular on the analysis of informality in the Peruvian context. It begins by discussing the definition of informality and the methods used to measure it, while also highlighting the reasons why widespread informality should be a cause for serious concern. It then analyzes the main determinants of informality and argues that it does not have a single cause, but rather is the result of a combination of deficient public services, an oppressive regulatory regime, and the state’s weak capacity for oversight and enforcement. This combination is particularly explosive when the country is characterized by low educational levels, strong demographic pressures, and primary production structures. Finally, using a cross-country regression analysis, the empirical significance of each of the determinants of informality is assessed, and the estimated relationships are then applied to the Peruvian case to evaluate the relevance of each of the proposed mechanisms in that specific country. (Audio: Department of Economic Publications)