Special Tax Regimes in Latin America and the Caribbean: Compliance, Social Protection, and Resource Misallocation

Oliver Azuara (), Rodrigo Azuero (), Mariano Bosch and Jesica Torres ()

No 9511, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Simplified tax regimes reduce both tax rates and compliance costs for small firms. On the one hand, these regimes increase the number of businesses formally registered and have the potential of also expanding the safety net when they subsidize the contributions to social security of workers in micro firms. On the other hand, they likely incentivize tax evasion due to the discontinuities in the tax schedule they introduce, and distort several micro-level margins, distortions which potentially accumulate into lower levels of aggregate productivity and GDP. In this paper, we exploit data from household surveys and administrative records for Peru, Brazil, and Mexico to examine the likely effects of special regimes on tax revenues, social protection, and resource misallocation. We find bunching of firms around the eligibility threshold of various tax regimes in Peru. This can be due to misreporting to tax authorities or to firms limiting their size to enjoy the benefits of the special tax regimes. In Brazil, we document how the introduction of a special tax regime benefiting the self-employed might have generated incentives for workers to register as entrepreneurs. Finally, in Mexico we find suggesting evidence showing how the introduction of a new special tax regime for small businesses in 2014 might have led to an increase in the number of employers contributing to the social security of their employees and in the number of self-employed making voluntary contributions to social protection. In all these instances we do not quantify exact causal effects, but we present instead descriptive evidence undoubtedly helpful to direct future research.

JEL-codes: H26 H30 J8 L11 L51 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ent and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://publications.iadb.org/publications/english ... allocation_en_en.pdf (application/pdf)

Related works:
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:idb:brikps:9511

DOI: 10.18235/0001586

Access Statistics for this paper

More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().