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Small business tax policy and informality: evidence from Georgia

Author

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  • Miriam Bruhn

    () (World Bank Group)

  • Jan Loeprick

    () (World Bank Group and Vienna University of Economics and Business)

Abstract

Abstract Using a panel of administrative data and regression discontinuity analysis, this paper examines how the introduction of preferential tax regimes for Georgian micro- and small businesses in 2010 affected formal firm creation and tax compliance. The results show that the new tax regime for micro-businesses increased the number of newly registered firms by 27–41 % below the eligibility threshold during the first year of the reform, but not in subsequent years. We do not find an effect of the new tax regime for small businesses on formal firm creation in any year. Policy makers are often also concerned about abuse risks stemming from differentiated tax treatment of micro- and small businesses. The analysis in this paper reveals reduced tax compliance among small taxpayers for multiple years after the reform and among micro-business taxpayers only during the first year of the reform.

Suggested Citation

  • Miriam Bruhn & Jan Loeprick, 2016. "Small business tax policy and informality: evidence from Georgia," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 834-853, October.
  • Handle: RePEc:kap:itaxpf:v:23:y:2016:i:5:d:10.1007_s10797-015-9385-9
    DOI: 10.1007/s10797-015-9385-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Small business taxation; Formal firm creation; Tax compliance;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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