Firms, Informality and Institutions. The case of Colombia

Cristina Fernandez ()

No 20598, Documentos de Trabajo from Universidad del Rosario

Abstract: This paper illustrates how two well indented policies to reduce informality as the income tax waiver for small firms, and the income tax deduction of labor cost, end up generating a large amount of small firms hiring workers without a formal contract. This paper also shows the difficulties to reduce informality amidst the complex regulatory environment of Colombia. Policies oriented to reduce labor informality have a limited impact and are costly from the fiscal point of view, policies oriented to reduce business informality are more effective, but does not necessarily reduce labor informality if they are directed towards low productivity firms, because such firms do not have incentives to hire formally. The methodology used to illustrate these facts was the estimation of Ulyssea (2018) for the case of Colombia with the mentioned institutional constraints and a minimum wage. The data base used compiles most of the firm information available in the country (Fernández, 2021).

Keywords: Informality; Firm informality; Business informality; Informal labor market; Taxonomy of informality; Policy recommendations for informality (search for similar items in EconPapers)
JEL-codes: D22 D58 E24 J21 J46 O17 (search for similar items in EconPapers)
Pages: 26
Date: 2022-12-13
New Economics Papers: this item is included in nep-dev, nep-iue and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:020598

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