Taxation and informality in the labor market: Implications for the transition to a circular economy

This paper explores the intricate relationships between the sustainable development goals (SDGs) with a specific focus on SDG8 (decent work and economic growth), and key circular economy (CE) indicators: recycling, resource efficiency, waste reduction, and CO2 emissions reduction. This study introduces a log-linear model to analyze the synergies and trade-offs between SDG8 and CE indicators, emphasizing the critical role of fiscal policies and informality in shaping sustainable outcomes. Various scenarios are evaluated, integrating these contextual factors to assess their impact on the effectiveness of CE practices in advancing SDG8. The findings highlight that a combination of low informality and favorable fiscal policies produces the strongest synergies, enhancing job quality, resource efficiency, and environmental sustainability. Conversely, high informality paired with neutral fiscal policies leads to diminished impacts, underscoring the need for integrated approaches to formalize economies and strengthen fiscal incentives for sustainability. The results lead to a structured framework to understand how different policy environments affect the role of CE in sustainable development, presenting testable hypotheses for future empirical research. By examining the dynamic interplay between the informal economy, taxation, and sustainability, this work offers valuable insights for policymakers aiming to align economic, social, and environmental objectives. The conclusions contribute to developing effective strategies that support balanced, sustainable growth, enhancing the practical application of CE within the SDG framework.