wbges 2010 11 discussion prepared by leora klapper, senior economist, world bank "what is the...
TRANSCRIPT
WBGES 2010 11
Discussion prepared by Leora Klapper, Senior Economist, World Bank
"What is the Cost of Formality? Experimentally Estimating the Demand for Formalization“
Suresh de Mel (University of Peradeniya), David McKenzie (World Bank) and Christopher Woodruff (University of Warwick)
WBGES 20102
Do Firms Transition From Informality?
• Less than 2% of firms in Latin America report in the Enterprise Survey that they started operations before registration
• Over 40% of firms in Cote d’Ivoire, Madagascar, and Mauritius are started not because the owner sees a good business opportunity, but because the (largest) owner could not find alternative employment opportunities (“unwilling” entrepreneurs) (World Bank, 2010)
• Registration information and elimination of fees is not enough to incentivize operating informal firms to register (de Mel, et al, 2010)
WBGES 20103
Where do firms register?
New Z
ealan
d
Bulgar
ia
Latv
ia
Czech
Rep
ublic
Lithu
ania
Japa
n
Franc
e
Austra
liaSpa
in
Austri
aIs
rael
Ukrain
e
Kazak
hsta
nIn
dia
Kosov
o
Tajikis
tan
Mon
tene
gro
Kyrgy
zsta
n
Argen
tina
Mad
agas
car
Cambo
dia
El Salv
ador
Thaila
nd
South
Afri
ca
Domini
can
Repub
lic
Rwanda
Kenya
Nigeria
Zambia
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Ratio of Nascent to formal Entrepreneurs
WBGES 20104
Why do firms register?Costs Benefits
• Registration fees
• Taxes
• Annual reporting
• Greater visibility
• Labor, Safety and other
Regulations
• Less informal payments
• Govt. assistance
• VAT tax ID’s
• Formal (e.g. Govt.) contracts
• Bank financing (i.e. new
investment)
• Formal labor contracts
• Courts, police protection, etc.
WBGES 20105
Who Benefits from Registration?
Is the initial choice to register exogenous?
Developing Industrialized0%
25%
50%
75%
100%
Wholesale &
Retail Wholesale &
Retail
Finance
Finance
Industry
Industry
Services
Services
WBGES 20106
Wish list:
• Could taxation be explicitly reimbursed (or waived?)
• Could this study be replicated for a sample of individuals that report wanting to start a business (‘nascent’ entrepreurs)?