Essays on Public Transfers and Informality

Abstract

This dissertation examines key fiscal policy and labor market dynamics aspects, focusing on fiscal rules, informality, and the interaction of informal employment with social transfers. The first paper develops a countercyclical fiscal rule that addresses the limitations of traditional budget rules by incorporating countercyclicality and sustainable debt levels based on the distinct characteristics of different government expenditures. Using a macroeconomic model, it proposes a rule that enhances welfare by aligning fiscal policy more closely with optimal paths. The second paper investigates the voluntary and involuntary nature of informal work, expanding existing frameworks to account for sectoral transitions and unemployment dynamics. Empirical analysis in the context of Costa Rica reveals that a significant proportion of informal workers are involuntarily informal, with the share varying depending on assumptions about transition probabilities and mobility within the informal sector. The third paper explores the challenges of extending unemployment benefits to informal workers, proposing conditional transfers as a solution to reduce false claims while balancing welfare gains and labor market distortions. Through a calibrated model, it evaluates how optimal transfer policies depend on informal wages, the size of the informal sector, and unemployment rates. Together, these papers contribute to understanding how fiscal and labor market policies can be better designed to promote economic stability, reduce inequality, and enhance welfare in developing economies.