Do lower taxes reduce informality? Evidence from Brazil

Rudi Rocha, Gabriel Ulyssea (g.ulyssea@ucl.ac.uk) and Laísa Rachter

Journal of Development Economics, 2018, vol. 134, issue C, 28-49

Abstract: We exploit a unique, large-scale formalization program in Brazil to estimate the effects of reducing the costs of formality on firm formalization. We rely on both firm-level administrative data and individual panel data to show that reducing taxes once registration costs have already been eliminated reduces firm informality. This effect comes from the formalization of existing informal firms, and not from the creation of new formal businesses nor greater formal firm survival. The implied formalization elasticity is otherwise low, and our cost-benefit analysis indicates that the program led to net losses in tax revenues.

Keywords: Taxes; Informality; Firm creation (search for similar items in EconPapers)
JEL-codes: H26 H32 O17 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:134:y:2018:i:c:p:28-49

DOI: 10.1016/j.jdeveco.2018.04.003

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