02510cas a2200337 a 4500 AALejournalIMF022682 230101c9999 xx r poo 0 0eng d 20.00 USD 9798400209055 1018-5941 BD-DhAAL BD-DhAAL Colombo, Emilio. Fiscal Multipliers and Informality / Emilio Colombo, Davide Furceri, Pietro Pizzuto, Patrizio Tirelli. Washington, D.C. : International Monetary Fund, 2022. 1 online resource (73 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier. This result holds irrespective of the levels of economic development and institutional quality and is robust to additional country characteristics such as trade, financial openness and exchange rate regime. In a two-sector new- Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks. Thus, informality raises the size of the unofficial multiplier. A higher degree of non-separability between public and private goods also contributes to rationalize the lower multipliers in high-informality countries. Mode of access: Internet Fiscal Policies and Behavior of Economic Agents imf Informal Economy imf National Government Expenditures and Related Policies imf Time-Series Models imf Underground Econom imf Furceri, Davide. Pizzuto, Pietro. Tirelli, Patrizio. IMF Working Papers; Working Paper ; No. 2022/082 Full text available on IMF https://elibrary.imf.org/openurl?genre=journal&issn=1018-5941&volume=2022&issue=082 IMF e-Library