The impact of the informal economy on inequality in income distribution in developing countries: a case study for Egypt

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Assistant Professor of Economics - Faculty of Commerce - Tanta University

Abstract

Egypt as several developing countries suffer from phenomena of informal economy, which accompanied with income inequality during the past three decades, these are fundamental obstacles to achieve sustainable economic development. Economic literature disagree in relation to impact of informal economy on income inequality in Egypt because estimation of informal economy is very difficult ,there are several indicators for income inequality and limited applied studies from Egypt in the long run , all these causes justify importance of this research. This paper aims to determine impact of estimated informal economy (besides important control variables include economic growth ,credit to private sector and corruption )on income inequality in Egypt for period 1990-2017 by using Cointegration ,Impulse response function and Granger Causality . Results refer to significant positive effect of informal economy on income concentration exceed other variables, its positive effect on rich shares exceed poor shares ,negative effect of corruption and credit to private sector on poor shares. These results advocate the necessity for reconsidering in methodology of informal economy in Egypt and subsidizing of small informal enterprises.   

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