Topic AreaAny sovereign state is to some extent concerned about the existence of informality in its economy. Although the topic of the informal economy is widely presented in interdisciplinary research, it remains understudied, especially from the perspective of entrepreneurship in a developing context (Castro, Khavul, & Bruton, 2014). The problem is particularly current in light of the Millennium Development Goals, the first of which is the elimination of extreme poverty and hunger. Poverty reduction programs are mainly based on the increasing involvement of the bottom quintile private sector in economic activity through development programmes. The effect of informality on business productivity and growth is much debated (Castro et al., 2014). On the one hand, the informal economy is one of the main factors that undermine the effectiveness of reforms in private sector development, because microfinance programs and other benefits arising from formality are underutilized. On the other hand, given that financial systems in developing countries are not consistent with the needs of the poor, the existence of the informal sector is a response to the shortcomings of the formal sector (Bakhtiari, 2006). To what extent does the inefficiency created by the presence of the informal sector affect the well-being of developing society? What positive effects does informality bring and why is informality a persistent phenomenon in developing countries? Literature ReviewWhen it comes to poverty reduction, a growing body of literature highlights the need to take the informal economy into consideration ( Hillenkamp, ​​​​Lapeyre & Lemaître, 2013). The informal economy is an extremely multifaceted topic, with complex social, legal and institutional determinants. Some authors see informality and... half of the document... data panels related to the topic are available and updated on a regular basis (World Bank datasets, national statistical reports/various world classification indices, etc.) . Previous studies have shown that the level of informality is a procyclical flow variable, adapting to current economic conditions. Thus the informal economy can be modeled as a dynamic system. In this phase, through the procedure described above (establishing the causal relationship), some characteristics (state, control variables) should be obtained that can allow it to be modeled with a greater level of precision. The objective of dynamic programming here is to monitor the change in the size of the informal economy over business cycles and study its impact on the socioeconomic environment. The research findings could be used to suggest policies to mitigate the negative effects of the informal economy.