How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi
Developing country governments seek to reduce the pervasive informality of firms for multiple reasons: increasing the tax base, helping firms access formal markets and grow, increasing the rule of law, and as a means to obtain data that can be used...
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/880711538673183990/How-Should-the-Government-Bring-Small-Firms-into-the-Formal-System-Experimental-Evidence-from-Malawi http://hdl.handle.net/10986/30510 |
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okr-10986-305102022-09-13T12:19:05Z How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi Campos, Francisco Goldstein, Markus McKenzie, David INFORMALITY BUSINESS REGISTRATION TAXATION ACCESS TO FINANCE SMALL AND MEDIUM ENTERPRISES MICROENTERPRISE GOVERNMENT TAX REGISTRATION REGULATION BANKING FIRM PERFORMANCE FINANCIAL SERVICES GENDER INNOVATION LAB AFRICA GENDER POLICY WOMEN AND PRIVATE SECTOR DEVELOPMENT Developing country governments seek to reduce the pervasive informality of firms for multiple reasons: increasing the tax base, helping firms access formal markets and grow, increasing the rule of law, and as a means to obtain data that can be used for other government functions. However, there is debate as to the best approach for achieving these goals. This study conducted a randomized experiment in Malawi to test three alternatives: (a) assisting firms to obtain a business registration certificate that offers access to formal markets but imposes no tax obligations; (b) assisting firms to obtain business registration and tax registration; and (c) supplementing the assistance to obtain business registration with a bank information session intended to help firms utilize one of the key potential benefits of formalizing. The study finds incredibly high demand for obtaining a formal status that is separate from tax obligations, and very low take-up of tax registration. Business registration alone has no impact on access to formal markets or firm performance. However, coupling registration assistance with the bank information session increases the use of formal financial services, and results in increases in firm sales by 20 percent and profits by 15 percent. The results highlight the advantages of separating business and tax registration, but also the need to assist firms in benefiting from their new formal status. 2018-10-04T20:58:40Z 2018-10-04T20:58:40Z 2018-10 Working Paper http://documents.worldbank.org/curated/en/880711538673183990/How-Should-the-Government-Bring-Small-Firms-into-the-Formal-System-Experimental-Evidence-from-Malawi http://hdl.handle.net/10986/30510 English Policy Research Working Paper;No. 8601 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Malawi |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
INFORMALITY BUSINESS REGISTRATION TAXATION ACCESS TO FINANCE SMALL AND MEDIUM ENTERPRISES MICROENTERPRISE GOVERNMENT TAX REGISTRATION REGULATION BANKING FIRM PERFORMANCE FINANCIAL SERVICES GENDER INNOVATION LAB AFRICA GENDER POLICY WOMEN AND PRIVATE SECTOR DEVELOPMENT |
| spellingShingle |
INFORMALITY BUSINESS REGISTRATION TAXATION ACCESS TO FINANCE SMALL AND MEDIUM ENTERPRISES MICROENTERPRISE GOVERNMENT TAX REGISTRATION REGULATION BANKING FIRM PERFORMANCE FINANCIAL SERVICES GENDER INNOVATION LAB AFRICA GENDER POLICY WOMEN AND PRIVATE SECTOR DEVELOPMENT Campos, Francisco Goldstein, Markus McKenzie, David How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| geographic_facet |
Africa Malawi |
| relation |
Policy Research Working Paper;No. 8601 |
| description |
Developing country governments seek to
reduce the pervasive informality of firms for multiple
reasons: increasing the tax base, helping firms access
formal markets and grow, increasing the rule of law, and as
a means to obtain data that can be used for other government
functions. However, there is debate as to the best approach
for achieving these goals. This study conducted a randomized
experiment in Malawi to test three alternatives: (a)
assisting firms to obtain a business registration
certificate that offers access to formal markets but imposes
no tax obligations; (b) assisting firms to obtain business
registration and tax registration; and (c) supplementing the
assistance to obtain business registration with a bank
information session intended to help firms utilize one of
the key potential benefits of formalizing. The study finds
incredibly high demand for obtaining a formal status that is
separate from tax obligations, and very low take-up of tax
registration. Business registration alone has no impact on
access to formal markets or firm performance. However,
coupling registration assistance with the bank information
session increases the use of formal financial services, and
results in increases in firm sales by 20 percent and profits
by 15 percent. The results highlight the advantages of
separating business and tax registration, but also the need
to assist firms in benefiting from their new formal status. |
| format |
Working Paper |
| author |
Campos, Francisco Goldstein, Markus McKenzie, David |
| author_facet |
Campos, Francisco Goldstein, Markus McKenzie, David |
| author_sort |
Campos, Francisco |
| title |
How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| title_short |
How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| title_full |
How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| title_fullStr |
How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| title_full_unstemmed |
How Should the Government Bring Small Firms into the Formal System? Experimental Evidence from Malawi |
| title_sort |
how should the government bring small firms into the formal system? experimental evidence from malawi |
| publisher |
World Bank, Washington, DC |
| publishDate |
2018 |
| url |
http://documents.worldbank.org/curated/en/880711538673183990/How-Should-the-Government-Bring-Small-Firms-into-the-Formal-System-Experimental-Evidence-from-Malawi http://hdl.handle.net/10986/30510 |
| _version_ |
1764472296987164672 |