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

Gabrieli, T., Galvao Jr, A. F. & Montes-Rojas, G. (2010). Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis (Report No. 10/07). London, UK: Department of Economics, City University London.

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Abstract

This paper studies the effects of increasing formality via tax reduction and simplification schemes on micro-firm performance. It uses the 1997 Brazilian SIMPLES program. We develop a simple theoretical model to show that SIMPLES has an impact only on a segment of the micro-firm population, for which the effect of formality on firm performance can be identified, and that can be analyzed along the single dimensional quantiles of the conditional firm revenues. To estimate the effect of formality, we use an econometric approach that compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We use an estimator that combines both quantile regression and the regression discontinuity identification strategy. The empirical results corroborate the positive effect of formality on micro-firms' performance and produce a clear characterization of who benefits from these programs.

Item Type: Monograph (Discussion Paper)
Additional Information: © 2010 the authors.
Uncontrolled Keywords: formality, micro-firms, quantile regression, regression discontinuity
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics > Department of Economics Discussion Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/1485

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