A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms

Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This...

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Main Authors:	Henrique de Andrade, Gustavo, Bruhn, Miriam, McKenzie, David
Format:	Policy Research Working Paper
Language:	en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	administrative records arrangement arrangements automobile beliefs bookstores boundary business facilitation business registration business sector cash flow Chamber of Commerce clustering company complexity Corporation data collection decision-making discovery discussion discussions documents Economic Activity economic development employment enabling environment entrepreneur entrepreneurs entrepreneurship financial services Firms Global Positioning System government office government policy government revenues GPS human capital hypothesis testing idea ideas indices inspection inspections Institution Job Creation Knowledge Claims license license fees licenses licensing manufacturing market entry marketing menu Microenterprises one-stop shop open access phone number photo Private Sector Private Sector Development probabilities probability procurement procurement process Regulatory reform regulatory reforms regulatory requirements researchers result results shop shops small businesses small enterprise Small Enterprises small firm small firms SME stores suppliers taxation telephone unfair competition Web website Microdata Set
Online Access:	http://hdl.handle.net/10986/16323

id	okr-10986-16323
recordtype	oai_dc
spelling	okr-10986-163232021-04-23T14:03:28Z A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms Henrique de Andrade, Gustavo Bruhn, Miriam McKenzie, David administrative records arrangement arrangements automobile beliefs bookstores boundary business facilitation business registration business sector cash flow Chamber of Commerce clustering company complexity Corporation data collection decision-making discovery discussion discussions documents Economic Activity economic development employment enabling environment entrepreneur entrepreneurs entrepreneurship financial services Firms Global Positioning System government office government policy government revenues GPS human capital hypothesis testing idea ideas indices inspection inspections Institution Job Creation Knowledge Claims license license fees licenses licensing manufacturing market entry marketing menu Microenterprises one-stop shop open access phone number photo Private Sector Private Sector Development probabilities probability procurement procurement process Regulatory reform regulatory reforms regulatory requirements researchers result results shop shops small businesses small enterprise Small Enterprises small firm small firms SME stores suppliers taxation telephone unfair competition Web website Microdata Set Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This paper reports on a field experiment conducted in Belo Horizonte, Brazil, in order to test which government actions work in getting informal firms to register. Firms were randomized to a control group or one of four treatment groups: the first received information about how to formalize; the second received this information and free registration costs along with the use of an accountant for a year; the third group was assigned to receive an enforcement visit from a municipal inspector; while the fourth group was assigned to have a neighboring firm receive an enforcement visit to see if enforcement has spillovers. The analysis finds zero or negative impacts of information and free cost treatments, and a significant but small increase in formalization from inspections. Estimates of the impact of actually receiving an inspection give a 21 to 27 percentage point increase in the likelihood of formalizing. The results show most informal firms will not formalize unless forced to do so, suggesting formality offers little private benefit to them. But the tax revenue benefits to the government of bringing firms of this size into the formal system more than offset the costs of inspections. 2013-11-27T17:23:58Z 2013-11-27T17:23:58Z 2013-05 http://hdl.handle.net/10986/16323 en_US Policy Research Working Paper;No.6435 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	administrative records arrangement arrangements automobile beliefs bookstores boundary business facilitation business registration business sector cash flow Chamber of Commerce clustering company complexity Corporation data collection decision-making discovery discussion discussions documents Economic Activity economic development employment enabling environment entrepreneur entrepreneurs entrepreneurship financial services Firms Global Positioning System government office government policy government revenues GPS human capital hypothesis testing idea ideas indices inspection inspections Institution Job Creation Knowledge Claims license license fees licenses licensing manufacturing market entry marketing menu Microenterprises one-stop shop open access phone number photo Private Sector Private Sector Development probabilities probability procurement procurement process Regulatory reform regulatory reforms regulatory requirements researchers result results shop shops small businesses small enterprise Small Enterprises small firm small firms SME stores suppliers taxation telephone unfair competition Web website Microdata Set
spellingShingle	administrative records arrangement arrangements automobile beliefs bookstores boundary business facilitation business registration business sector cash flow Chamber of Commerce clustering company complexity Corporation data collection decision-making discovery discussion discussions documents Economic Activity economic development employment enabling environment entrepreneur entrepreneurs entrepreneurship financial services Firms Global Positioning System government office government policy government revenues GPS human capital hypothesis testing idea ideas indices inspection inspections Institution Job Creation Knowledge Claims license license fees licenses licensing manufacturing market entry marketing menu Microenterprises one-stop shop open access phone number photo Private Sector Private Sector Development probabilities probability procurement procurement process Regulatory reform regulatory reforms regulatory requirements researchers result results shop shops small businesses small enterprise Small Enterprises small firm small firms SME stores suppliers taxation telephone unfair competition Web website Microdata Set Henrique de Andrade, Gustavo Bruhn, Miriam McKenzie, David A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
relation	Policy Research Working Paper;No.6435
description	Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This paper reports on a field experiment conducted in Belo Horizonte, Brazil, in order to test which government actions work in getting informal firms to register. Firms were randomized to a control group or one of four treatment groups: the first received information about how to formalize; the second received this information and free registration costs along with the use of an accountant for a year; the third group was assigned to receive an enforcement visit from a municipal inspector; while the fourth group was assigned to have a neighboring firm receive an enforcement visit to see if enforcement has spillovers. The analysis finds zero or negative impacts of information and free cost treatments, and a significant but small increase in formalization from inspections. Estimates of the impact of actually receiving an inspection give a 21 to 27 percentage point increase in the likelihood of formalizing. The results show most informal firms will not formalize unless forced to do so, suggesting formality offers little private benefit to them. But the tax revenue benefits to the government of bringing firms of this size into the formal system more than offset the costs of inspections.
format	Publications & Research :: Policy Research Working Paper
author	Henrique de Andrade, Gustavo Bruhn, Miriam McKenzie, David
author_facet	Henrique de Andrade, Gustavo Bruhn, Miriam McKenzie, David
author_sort	Henrique de Andrade, Gustavo
title	A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
title_short	A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
title_full	A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
title_fullStr	A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
title_full_unstemmed	A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms
title_sort	helping hand or the long arm of the law? experimental evidence on what governments can do to formalize firms
publisher	World Bank, Washington, D.C.
publishDate	2013
url	http://hdl.handle.net/10986/16323
_version_	1764432846655586304

A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms

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