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Financial disincentives to formal work: Evidence from Ecuador and Colombia

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  • Xavier Jara
  • David Rodríguez

Abstract

The aim of this paper is to quantify the financial cost that informal workers would incur in the event of entering formality, accounting for potential earnings gains upon entry. To do so, we use representative microdata from Ecuador and Colombia, together with detailed tax-benefit models, and simulate transitions to formal employment for all workers observed in informality in the data, with informality defined as non-affiliation to social security.

Suggested Citation

  • Xavier Jara & David Rodríguez, 2019. "Financial disincentives to formal work: Evidence from Ecuador and Colombia," WIDER Working Paper Series wp-2019-14, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp-2019-14
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    File URL: https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp-2019-14.pdf
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    Cited by:

    1. H. Xavier Jara & María Cecilia Deza Delgado & Nicolás Oliva & Javier Torres, 2023. "Financial disincentives to formal employment and tax-benefit systems in Latin America," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 69-113, February.
    2. Nuria Ceular-Villamandos & Virginia Navajas-Romero & Lorena Caridad y López del Río & Lucia Zita Zambrano-Santos, 2021. "Workplace Situation and Well-Being of Ecuadorian Self-Employed," Sustainability, MDPI, vol. 13(4), pages 1-26, February.

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    Keywords

    Formalization; Informal sector; Informality; Tax-benefit microsimulation; Tax; SOUTHMOD;
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