How should the government bring small firms into the formal system? Experimental evidence from Malawi

Francisco Campos, Markus Goldstein and David McKenzie

Journal of Development Economics, 2023, vol. 161, issue C

Abstract: Governments seek to reduce pervasive firm informality for multiple reasons: taxes, firm growth, rule of law, and information. We conducted a randomized experiment in Malawi to test three alternatives to achieving these goals: a) helping firms obtain a business registration certificate that offers formal market access but imposes no tax obligations; b) helping firms obtain both business and tax registration; and c) supplementing business registration with a bank information session. We find incredibly high demand for obtaining a formal status that is separate from tax obligations, and very low take-up of tax registration. Business registration alone has no impact on formal market access or firm performance. However, combining registration assistance with the bank information session increases firm sales by 20 percent and profits by 15 percent. The results highlight the advantages of separating business and tax registration, but also the need to help firms benefit from their new formal status.

Keywords: Informality; Business registration; Tax; Government; Financial access; Small enterprises (search for similar items in EconPapers)
JEL-codes: C93 D22 H41 L26 O12 O17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: How Should the Government Bring Small Firms into the Formal System ? Experimental Evidence from Malawi (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:161:y:2023:i:c:s0304387822001870

DOI: 10.1016/j.jdeveco.2022.103045

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