Oscar Calvo is an economist who works on economic policy for the Latin American and Caribbean region here at the World Bank. He shared with me some interesting research on the determinants of informality in Peru. Oscar and his team conducted a survey of 802 micro and small firms, both informal and formal, and came up with the following chart (below the jump) on the benefits of being registered to pay taxes. (The RUC number is the firm’s tax ID).
Suppose a firm thinks it is not worthwhile to register formally. But this firm would register if the registration costs were a bit lower. Let’s call this firm a "marginal firm."
Recently I saw this paper by Leora Klapper, Anat Lewin, and Juan Manuel Quesada Delgado. The authors find that there are important benefits to making business registration simpler. They say:
In my last post, I claimed that “it is common for formal firms to have many informal workers.” How do I know that?
Joyce Sadka and I have been doing some work using data from a labor court in Cuautitlán, which is located just outside of Mexico City. Each data point represents an individual who claimed to have been fired from a formal-sector firm without cause.
An earlier post on this blog talked about the benefits to informal or unregistered firms from registering. Using data on informal firms in Côte d’Ivoire, Madagascar and Mauritius (Enterprise Surveys), I argued that a majority of the informal firms believe that registration brings real benefits, especially those associated with better access to finance and markets.
The answer seems to be "yes", according to a new post by Bill Easterly on Rodrik's views on industrial policy.
Mohammad Amin gave us a post on new results from a survey of informal firms. Good data from informal firms is indeed an exciting innovation.
I want to focus on his results from Côte d'Ivoire. It turns out that 95% of informal firms in Côte d'Ivoire believe that their access to credit would improve if they became formal firms. This result prompts Mohammad to ask “why don’t firms register then?”
Chris Blattman has a question for staff at the World Bank and UN:
I seldom fly business myself, even on Bank and UN consultancies, mostly to conserve my project funds for research assistants and survey expenses. My incentives are just right: money I spend on me comes out of money I'd spend making my research projects just a little better. Not so the rest of the agency?