The Impact of Lowering the Payroll Tax on Informality in Colombia

Cristina Fernandez () and Leonardo Villar

Economía Journal, 2017, vol. Volume 18 Number 1, issue Fall 2017, 125-155

Abstract: In 2012, the Colombian Government reduced employer payroll contributions from 29.5 to 16.0 percent. Two years later, the informality rate had diminished by about 4.0 percentage points. This paper attempts to estimate how much of this reduction was due to the tax reform, isolating the impact of other macroeconomic variables. A natural approach to performing this task is to apply a difference-in-differences methodology using a household survey panel. Since the Colombian survey does not have a panel structure, we simulated one using a matching difference-in-differences methodology. According to the results, the tax reform is associated with a 4.8-percentage-point decrease in the informality of workers affected by the reform in the thirteen main metropolitan areas. This represents approximately half the reduction of the relevant informality rate during that period, affecting mostly salaried men and workers in general with low levels of education.

Keywords: Informal markets; payroll taxes; matching; difference-in-differences (search for similar items in EconPapers)
JEL-codes: C21 H23 J46 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
http://economia.lacea.org/contents.htm

Related works:
Working Paper: The impact of lowering the payroll tax on informality in Colombia (2017)
Working Paper: The impact of lowering the payroll tax on informality in Colombia (2016)
Working Paper: The impact of lowering the payroll tax on informality in Colombia (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000425:015830

Access Statistics for this article

More articles in Economía Journal from The Latin American and Caribbean Economic Association - LACEA Contact information at EDIRC.
Bibliographic data for series maintained by LACEA ().