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Do lower taxes reduce informality? Evidence from Brazil

Rocha, R; Ulyssea, G; Rachter, L; (2018) Do lower taxes reduce informality? Evidence from Brazil. Journal of Development Economics , 134 pp. 28-49. 10.1016/j.jdeveco.2018.04.003. Green open access

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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.

Type: Article
Title: Do lower taxes reduce informality? Evidence from Brazil
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jdeveco.2018.04.003
Publisher version: https://doi.org/10.1016/j.jdeveco.2018.04.003
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Social Sciences, Economics, Business & Economics, Taxes, Informality, Firm creation, ENTRY REGULATION, FORMALIZATION
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10131615
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