Seminar Internal Seminar: Francesco Turino

Abstract

This paper investigates the interplay between entrepreneurial investments in human capital and the informality of firms, exploring how this dynamic is influenced by a country's level of financial frictions. To this end, we build a comprehensive quantitative life-cycle general equilibrium model of entrepreneurship that accounts for credit market imperfections, limited tax enforcement, and educational decision-making. Quantitative results based on a calibrated version of the model for the Brazilian economy reveal that factors supporting increased educational attainment among entrepreneurs play a pivotal role in promoting formalization within firms. This is primarily achieved through the availability of a skilled labor force, which leads to heightened firm productivity. The magnitude of this effect is intricately linked to the extent of credit market imperfections prevalent in the economy.