Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis

Gabrieli, T., Galvao Jr, A. F. & Montes-Rojas, G. (2012). Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis. Research in Labor Economics, 34, pp. 101-133. doi: 10.1108/S0147-9121(2012)0000034006

[img]
Preview
Text - Accepted Version
Download (1MB) | Preview

Abstract

This chapter studies the effect of increasing formality via tax reduction and simplification schemes on micro-firm performance. We develop a simple theoretical model that yields two intuitive results. First, low- and high-ability entrepreneurs are unlikely to be affected by a tax reduction and therefore, the reduction has an impact only on a segment of the microfirm population. Second, the benefits to such reduction, as measured by profits and revenues, are increasing in the entrepreneur's ability. Then, we estimate the effect of formality on the entire conditional distribution (quantiles) of revenues using the 1996 Brazilian SIMPLES program and a rich survey of formal and informal micro-firms. The econometric approach compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We develop an estimator that combines both quantile regression and the regression discontinuity design. The econometric results corroborate the positive effect of formality on micro-firms' performance and produce a clear characterization of who benefits from these programs.

Item Type: Article
Additional Information: This article is (c) Emerald Group Publishing and permission has been granted for this version to appear here http://openaccess.city.ac.uk/. Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited.
Uncontrolled Keywords: Formality; Micro-Firms; Quantile regression; Regression discontinuity
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics
URI: http://openaccess.city.ac.uk/id/eprint/12042

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics