A Helping Hand or the Long Arm of the Law? : Do Carrots or Sticks Work Best for Bringing Informal Firms into the Formal Sector?
Since 2004, 75 percent of countries have adopted at least one reform making it easier to register a business. Yet, despite these efforts, the majority of firms in most developing countries remain informal. This is of concern to policymakers, who wo...
| Main Authors: | , , |
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| Format: | Brief |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/05/17810458/helping-hand-or-long-arm-law-carrots-or-sticks-work-best-bringing-informal-firms-formal-sector http://hdl.handle.net/10986/22623 |
| Summary: | Since 2004, 75 percent of countries have
adopted at least one reform making it easier to register a
business. Yet, despite these efforts, the majority of firms
in most developing countries remain informal. This is of
concern to policymakers, who worry that a large stock of
informal firms results in a loss in tax revenue, unfair
competition for formal firms, and a culture of informality.
Much less attention has been given to increasing the costs
of remaining informal through better enforcement of existing
laws. A field experiment conducted with the State Government
of Minas Gerais in the city of Belo Horizonte in Brazil
provides an opportunity to test the relative merits of
further cost-reduction versus enforcement in formalizing
firms. Further experimentation as to how to better improve
the process of enforcement of regulations, seems an
important area for policy and research efforts going forward. |
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