Interview with Guillermo Calvo

From the Richmond Fed, the focus is Latin America.  Here is one insightful bit of many:

RF: What is your opinion of Hernando de Soto’s The
Other Path
? What lessons can policymakers in Latin
America take from that book?

Calvo: The main lesson is that regulations must be
simplified as much as possible in order to encourage the development
of the formal sector and, thus, most likely enhance the
pace of technical progress. However, I am skeptical that a major
overhaul of government regulations will have a major effect in
the short or medium term. The reason is that the informal sector
strongly relies on tax evasion and, unless you implement a
major tax moratorium – accompanied by substantially lowered
tax rates –firms are likely not to move to the formal sector,
even if all the red tape is eliminated. Moreover, a moratorium is
likely to have detrimental moral hazard implications.


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