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Can Enhancing the Benefits of Formalization Induce Informal Firms to Become Formal? Experimental Evidence from Benin

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  • McKenzie, David
  • Benhassine, Najy
  • Pouliquen, Victor
  • Santini, Massimiliano

Abstract

A randomized experiment based around the introduction of the entreprenant legal status in Benin is used to test the effectiveness of supplementary efforts to enhance the presumed benefits of formalization by facilitating its links to government training programs, support to open bank accounts, and tax mediation services. Few firms register when just given information about the new regime, but the full package of supplementary efforts boosts formalization by 16.3 percentage points. Firms that are larger, and that look more like formal firms to begin with, are more likely to formalize, providing guidance for better targeting of such policies

Suggested Citation

  • McKenzie, David & Benhassine, Najy & Pouliquen, Victor & Santini, Massimiliano, 2017. "Can Enhancing the Benefits of Formalization Induce Informal Firms to Become Formal? Experimental Evidence from Benin," CEPR Discussion Papers 11764, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11764
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    9. Gustavo Henrique de Andrade & Miriam Bruhn & David McKenzie, 2016. "A Helping Hand or the Long Arm of the Law? Experimental Evidence on What Governments Can Do to Formalize Firms," The World Bank Economic Review, World Bank, vol. 30(1), pages 24-54.
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    Cited by:

    1. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series wp-2018-159, World Institute for Development Economic Research (UNU-WIDER).
    2. David McKenzie & Anna Luisa Paffhausen, 2019. "Small Firm Death in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 101(4), pages 645-657, October.
    3. Brian McCaig & Jordan Nanowski, 2019. "Business Formalisation in Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 55(5), pages 805-821, May.
    4. Saavedra, S, 2023. "The Impact of Formalization Assistance on Informality: Experimental evidence from Colombian mines," Documentos de Trabajo 20793, Universidad del Rosario.
    5. Caroline Krafft & Reham Rizk, 2018. "The Promise and Peril of Youth Entrepreneurship in MENA," Working Papers 1257, Economic Research Forum, revised 19 Nov 2018.
    6. Novice Patrick Bakehe & Georges Dieudonné Mbondo, 2021. "What Drives Informality of Micro and Small Cameroonian Businesses?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 597-610, September.
    7. Hanna Berkel, 2018. "The costs and benefits of formalization for firms: A mixed-methods study on Mozambique," WIDER Working Paper Series 159, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Informality; Small enterprises; Regulatory simplification;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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