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Increasing Formality and Productivity of Bolivian Firms

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  • World Bank
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    Abstract

    Bolivia's informal sector is the largest in Latin America, by many definitions and measures. Bolivia's high informality rate has been blamed on many factors including the burden of regulation, the weakness of public institutions, and the lack of perceived benefits to being formal. The high level of informality has a number of negative implications related to for low productivity, low growth, and low quality of jobs. This study presents fresh qualitative and quantitative analyses to better understand the reasons why firms are informal and the impact of formalization on their profitability, in order to inform policy actions appropriate to the reality of Bolivia. The crucial finding of the analysis is that the impact of tax registration on profitability depends on firm size and the ability to issue tax receipts. The smallest and the largest firms in the sample have lower profits as a result of tax registration because their cost of formalizing exceeds benefits. Firms in the middle range (two to five employees) benefit from tax registration in large part due to increasing the customer base by issuing tax receipts. The study presents a set of prioritized policy implications for policy makers. In the short term, the first priority should be to increase the benefits of formalization through training, access to credit and markets, and business support. The second priority is to increase information on how to formalize and its benefits. In the medium term, the priority is to simplify formalization, regulatory, and taxation procedures and to reduce their costs. Increasing even-handed enforcement of taxation and regulation is also important but not a priority for micro and small firms. Measures to boost the productivity of micro and small firms in general will help overall economic growth, employment, and formalization.

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    Bibliographic Info

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    This book is provided by The World Bank in its series World Bank Publications with number 2675 and published in 2009.

    ISBN: 978-0-8213-8023-9
    Handle: RePEc:wbk:wbpubs:2675

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    Postal: 1818 H Street, N.W., Washington, DC 20433
    Phone: (202) 477-1234
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    Web page: https://openknowledge.worldbank.org
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    Related research

    Keywords: Social Protections and Labor - Labor Markets Finance and Financial Sector Development - Microfinance Finance and Financial Sector Development - Banks & Banking Reform Finance and Financial Sector Development - Access to Finance;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Lewis, William W., 2004. "The Power of Productivity," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226476766, June.
    2. Horacio Villegas & Javier Núñez, 2005. "Discriminación étnica en Bolivia: examinando diferencias regionales y por nivel de calificación," Estudios de Economia, University of Chile, Department of Economics, vol. 32(2 Year 20), pages 201-218, December.
    3. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World," IMF Working Papers 00/26, International Monetary Fund.
    4. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    5. Leonardo Gasparini & Leopoldo Tornarolli, 2007. "Labor Informality in Latin America and the Caribbean: Patterns and Trends from Household Survey Microdata," CEDLAS, Working Papers 0046, CEDLAS, Universidad Nacional de La Plata.
    6. Fajnzylber, Pablo & Maloney, William F. & Rojas, Gabriel V. Montes, 2006. "Releasing constraints to growth or pushing on a string ? the impact of credit, training, business associations, and taxes on the performance of Mexican micro-firms," Policy Research Working Paper Series 3807, The World Bank.
    7. Coco, G., 1998. "On the Use of Collateral," Discussion Papers 9805, Exeter University, Department of Economics.
    8. Mercado, Alejandro F. & Ríos, Fernando, 2005. "Elasticidad Cruzada de la Oferta de Trabajo," Documentos de trabajo 7/2005, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    9. Pradhan, M.P. & Soest, A.H.O. van, 1993. "Formal and informal sector employment in urban areas of Bolivia," Discussion Paper 1993-11, Tilburg University, Center for Economic Research.
    10. Sunita Kikeri & Thomas Kenyon & Vincent Palmade, 2006. "Reforming the Investment Climate : Lessons for Practitioners," World Bank Publications, The World Bank, number 7096, July.
    11. Maria Tannuri-Pianto & Donald Pianto, 2004. "Informal employment in Bolivia: A lost proposition?," Econometric Society 2004 Latin American Meetings 149, Econometric Society.
    12. John Gibson & David McKenzie, 2007. "Using the Global Positioning System (GPS) in Household Surveys For Better Economics and Better Policy," Working Papers in Economics 07/04, University of Waikato, Department of Economics.
    13. Kikeri, Sunita & Kenyon,Thomas & Palmade, Vincent, 2006. "Reforming the investment climate : lessons for practitioners," Policy Research Working Paper Series 3986, The World Bank.
    14. Dean Karlan & Martin Valdivia, 2011. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 510-527, May.
    15. Henley, Andrew & Arabsheibani, G. Reza & Carneiro, Francisco G., 2006. "On defining and measuring the informal sector," Policy Research Working Paper Series 3866, The World Bank.
    16. Hallman, Kelly & Quisumbing, Agnes R. & Ruel, Marie T. & de la Briere, Benedicte, 2003. "Childcare and work," FCND briefs 151, International Food Policy Research Institute (IFPRI).
    17. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    18. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
    19. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
    20. Rocío Ribero, 2003. "Gender Dimensions Of Non-Formal Employment In Colombia," DOCUMENTOS CEDE 002762, UNIVERSIDAD DE LOS ANDES-CEDE.
    21. Almeida, Rita & Carneiro, Pedro, 2005. "Enforcement of labor regulation, informal labor, and firm performance," Policy Research Working Paper Series 3756, The World Bank.
    22. Chen, Martha Alter, 2005. "Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment," Working Paper Series RP2005/10, World Institute for Development Economic Research (UNU-WIDER).
    23. Mercado, Alejandro F. & Ríos, Fernando, 2005. "La Informalidad: ¿Estrategia de Sobrevivencia o Forma de Vida Alternativa?," Documentos de trabajo 4/2005, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    24. Katayama, Hajime & Lu, Shihua & Tybout, James R., 2009. "Firm-level productivity studies: Illusions and a solution," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 403-413, May.
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    Cited by:
    1. World Bank, 2012. "Ecuador : The Faces of Informality (Las Caras de La Informalidad)," World Bank Other Operational Studies 13252, The World Bank.
    2. Medvedev, Denis & Oviedo, Ana Maria, 2013. "Informality and profitability : evidence from a new firm survey in Ecuador," Policy Research Working Paper Series 6431, The World Bank.

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