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The Urban Informal Economy

   

Added on  2021-05-30

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Tutorial 5: Tutorial Questions for Urban Economics (16235) –Informal Economies Answer the following questions based on Dijkstra (2011)1.Primarily, the informal sectors refers to the non –taxable sources of income in a giveneconomy. Sometimes the informal sector is called black, underground, unofficial economy (Dijkista,2006). Usually, informal workers don’t declare income returns due to the fact that there income are notsubjected to taxation. Informal employment could be from legal and illegal employment sources(Market business news, 2018).Unlike formal sources of employment where workers are required to paytaxes as an employment requirement, such measures are not implemented in the informal economy thusmaking it possible to employ more workers. Informal activities might be legal or illegal. In mosteconomies, there is both types of formal and informal economies. 2.Usually, the informal sector production is inefficient due to the fact that they tend to avoidlegal ways of doing things. The inefficiency in the production of goods and services in the informalsector is not ideal for the economy according to economists due to the possibility of low quality,wastage and inefficient pricing. Under inefficient production, there is no balance between output andprices which is not good for the economy. The inability to openly enforce contracts and penetrate acustomer base .In addition, the informal sector is an effective way of tax evasion thereby implying thatthe burden of taxation falls solely on the formal economy as opposed to the informal economy. Thefact that informal income sources are not taxed implies that the formal sector of the economy solelysupports the public expenditure.3.Essentially, multiple equilibria is a co-existing informal and formal economies. There is asupposed interrelationship between the formal and informal economical sector. Under this type ofequilibrium, it is assumed that there is an interconnectedness between formal and informal incomesources at the same time.4.Due to the tax evasion advantages of the informal activities, many workers prefer this sector because they get to ignore the tax burden that comes with formal employment opportunities. Informal sector provides more employment opportunities as compared to formal system of most economies.
The Urban Informal Economy_1

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