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Increasing Formality and Productivity of Bolivian Firms

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  • World Bank

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.

Suggested Citation

  • World Bank, 2009. "Increasing Formality and Productivity of Bolivian Firms," World Bank Publications, The World Bank, number 2675, April.
  • Handle: RePEc:wbk:wbpubs:2675
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    File URL: https://openknowledge.worldbank.org/bitstream/handle/10986/2675/503580PUB0Box3101OFFICIAL0USE0ONLY1.pdf?sequence=1
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    References listed on IDEAS

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    1. repec:aru:wpaper:201403 is not listed on IDEAS
    2. Babbitt, Laura G. & Brown, Drusilla & Mazaheri, Nimah, 2015. "Gender, Entrepreneurship, and the Formal–Informal Dilemma: Evidence from Indonesia," World Development, Elsevier, vol. 72(C), pages 163-174.
    3. 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.
    4. World Bank, 2012. "Ecuador : The Faces of Informality (Las Caras de La Informalidad)
      [Ecuador - Las caras de la informalidad]
      ," World Bank Other Operational Studies 13252, The World Bank.
    5. Miguel Ángel Borrella Mas & Mariano Bosch Mossi & Marcello Sartarelli, 2016. "Non-Contributory Pensions Number-Gender Effects on Poverty and Household Decisions," Working Papers. Serie AD 2016-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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