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This paper develops and estimates a model linking tax policies to the size of the informal sector. Our results suggest that informal employment responds to the strength of enforcement and, to a lesser extent, to tax rates. Looking across sectors, we find service sector informal employment responds to both changes in tax rates and enforcement, while manufacturing sector informal employment responds only to enforcement. Quantitatively, changes in enforcement affect the manufacturing informal sector more than the service sector. These results are robust to various measures of informal employment and hold for other countries outside of Asia as well. Since informal employment (and hence output) is related to a country's GDP, these results suggest that policy makers should consider the effect of their policies on the size of the informal sector.

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This paper argues that a more complex view of work and schooling is critical to poor countries as they implement policies to increase educational attainment. In this analysis of 12-17-year-old girls and boys in urban Mexico, we expand the traditional approach in two dimensions by (1) moving from an analysis of participation to one of hours of participation, and (2) broadening the definition of work to include youth's household responsibilities. Copyright � 2008 The Authors. Journal compilation � 2008 Blackwell Publishing Ltd.