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Who Benefits from Reducing the Cost of Formality? Quantile Regression Discontinuity Analysis

Tommaso Gabrieli (), Antonio Galvao and Antonio Galvao
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Antonio Galvao: University of Iowa
Antonio Galvao: City University London

Real Estate & Planning Working Papers from Henley Business School, University of Reading

Abstract: This paper studies the effects of increasing formality via tax reduction and simplification schemes on micro-firm performance. It uses the 1997 Brazilian SIMPLES program. We develop a simple theoretical model to show that SIMPLES has an impact only on a segment of the micro-firm population, for which the effect of formality on firm performance can be identified, and that can be analyzed along the single dimensional quantiles of the conditional firm revenues. To estimate the effect of formality, we use an econometric approach that compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We use an estimator that combines both quantile regression and the regression discontinuity identification strategy. The empirical results corroborate the positive effect of formality on microfirms' performance and produce a clear characterization of who benefits from these programs.

Keywords: Formality; Micro-firms; Quantile regression; Regression discontinuity (search for similar items in EconPapers)
JEL-codes: J23 L25 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-10
New Economics Papers: this item is included in nep-iue
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