The Impact of Tax Asymmetries on Labor and Business Informality: The Case of Colombia

Cristina Fernandez ()

No 21323, Documentos de Trabajo from Universidad del Rosario

Abstract: This paper illustrates how two well-indented policies to reduce informality, such as the income tax waiver for small firms and the income tax deduction of labor cost, end up generating a large number of small firms hiring workers, most likely unskilled, without a formal contract. This paper also shows the difficulties in reducing informality in 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 do not necessarily reduce labor informality if they are directed towards low-productivity firms. The methodology used to illustrate these facts was the estimation of Ulyssea (2018) for the case of Colombia, in an environment of asymmetric tax and social security regulations.

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: 23 pages
Date: 2025-01-30
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:021323

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