The effect of informal employment and corruption on income levels in Brazil

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This paper exploits a unique dataset on corruption and informal sector employment in 476 Brazilian municipalities to estimate whether corruption impacts GDP or income levels once variation in informal economic activity is taken into account. Overall, I find that higher levels of corruption and a large informal economy are generally associated with poor economic outcomes. However, only the size of the informal economy has a statistically significant effect. This effect is robust to the inclusion of a variety of controls and fixed effects, as well as an instrumental variable analysis. Further, these effects are large in magnitude. For example, a one standard deviation increase in the share of total employees that are informally employed explains a decrease in GDP per-capita of about 18%.

Original languageEnglish
Pages (from-to)657-695
Number of pages39
JournalJournal of Comparative Economics
Issue number3
StatePublished - Aug 1 2016


  • Corruption
  • Growth
  • Income levels
  • Informal economy


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