EconPapers    
Economics at your fingertips  
 

Do Payroll Tax Breaks Stimulate Formality? Evidence from Colombia’s Reform

Adriana Kugler, Maurice Kugler () and Luis Omar Herrera Prada

No 23308, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Alternative work arrangements have grown rapidly around the world. In Latin America, these alternative work arrangements have long been part of the labor market and have continued to grow. The informal sector grew rapidly in Latin America over the past few decades comprising up to half of the working population in many countries. Some attribute the growth in alternative work arrangements and informality to regulations and taxes, while others argue that it is precisely the lack of enforcement of regulations that allows unprotected employment arrangements to flourish. We examine whether reducing taxes associated with employment stimulates formal sector employment. We exploit the fact that the Tax Reform introduced in Colombia in 2012 affected only certain types of workers and not others. In particular, workers earning less than 10 minimum wages (MW) and self-employed workers with more than 2 employees experienced a reduction of payroll taxes of 13.5% between 2013 and 2014. We use the Colombian Household Surveys, Social Security records and the Monthly Manufacturing Sample to conduct difference-in-difference analyses of the reform. We find evidence of increased formal employment for the affected groups after the reform using all three datasets. We find that the probability of formal employment and the likelihood of transitioning into registered employment increased for the affected groups after the reform. We also find that the level and share of permanent employment relative to temp employment grew after the reform for those earnings less than 10 MW. The results are greatest for those in smaller firms and those earnings close to the MW.

JEL-codes: H2 J2 J24 J31 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-iue, nep-lam, nep-lma, nep-ltv, nep-pbe and nep-pub
Note: LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Published as Adriana D. Kugler & Maurice D. Kugler & Luis O. Herrera-Prada, 2017. "Do Payroll Tax Breaks Stimulate Formality? Evidence from Colombia’s Reform," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2017), pages 3-40, November.

Downloads: (external link)
http://www.nber.org/papers/w23308.pdf (application/pdf)

Related works:
Journal Article: Do Payroll Tax Breaks Stimulate Formality? Evidence from Colombia’s Reform (2017) Downloads
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:nbr:nberwo:23308

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23308

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-11-27
Handle: RePEc:nbr:nberwo:23308