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Publication Detail
Do lower taxes reduce informality? Evidence from Brazil
  • Publication Type:
    Journal article
  • Authors:
    Rocha R, Ulyssea G, Rachter L
  • Publisher:
    ELSEVIER SCIENCE BV
  • Publication date:
    09/2018
  • Pagination:
    28, 49
  • Journal:
    Journal of Development Economics
  • Volume:
    134
  • Status:
    Published
  • Print ISSN:
    1872-6089
  • Language:
    English
  • Keywords:
    Social Sciences, Economics, Business & Economics, Taxes, Informality, Firm creation, ENTRY REGULATION, FORMALIZATION
  • Notes:
    This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Abstract
We exploit a unique, large-scale formalization program in Brazil to estimate the effects of reducing the costs of formality on firm formalization. We rely on both firm-level administrative data and individual panel data to show that reducing taxes once registration costs have already been eliminated reduces firm informality. This effect comes from the formalization of existing informal firms, and not from the creation of new formal businesses nor greater formal firm survival. The implied formalization elasticity is otherwise low, and our cost-benefit analysis indicates that the program led to net losses in tax revenues.
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