policy, but the institute itself takes no institutional policy positions.

Abstract This paper studies the effects of increasing formality via tax reduction and simplification schemes on micro-firm performance. It uses the 1997 Brazilian SIMPLES program. We develop a simple theoretical model to show that SIMPLES has an impact only on a segment of the micro-firm population, for which the effect of formality on firm performance can be identified, and that can be analyzed along the single dimensional quantiles of the conditional firm revenues. To estimate the effect of formality, we use an econometric approach that compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We use an estimator that combines both quantile regression and the regression discontinuity identification strategy. The empirical results corroborate the positive effect of formality on microfirms' performance and produce a clear characterization of who benefits from these programs. Key Words: Formality; Micro-firms; Quantile regression; Regression discontinuity JEL Classification: J23; L25 * The authors would like to express their appreciation to Scott Adams, John Heywood, William Maloney, and Blaise Melly for helpful comments and discussions. All the remaining errors are ours. † Corresponding author: Department of Economics, University of Iowa, W334 Pappajohn Business Building, 21 E. Market Street, Iowa City, IA 52242. E-mail: antonio-galvao@uiowa.edu Electronic copy available at: http://ssrn.com/abstract=1696003 "Lo que pasa es que acá si vos queres abrir un negocio te matan a papeles, y después te controlan, y los impuestos te revientan." [What happens here is that when you try to open a business they kill you on paperwork (red tape), then they control you, and taxes are unbearable.] Martín Caparrós, El Interior, a book on interviews and anecdotes from the poor countryside in Argentina.

We study how restrictions on firm entry affect intersectoral factor reallocation when open economies experience global economic shocks. In our theoretical framework, countries trade freely in a range of differentiated sectors that are subject to country-specific and global shocks. Entry restrictions are modeled as an upper bound on the introduction of new differentiated goods following shocks. Prices and quantities adjust to clear international goods markets, and wages adjust to clear national labor markets. We show that in general equilibrium, countries with tighter entry restrictions see less factor reallocation compared to the frictionless benchmark. In our empirical work, we compare sectoral employment reallocation across countries in the 1980s and 1990s with proxies for frictionless benchmark reallocation. Our results indicate that the gap between actual and frictionless reallocation is greater in countries where it takes longer to start a firm.

This paper is freely available online under the BMJ Journals unlocked scheme, see

Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen der unter

Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen der unter

Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen der unter

it pay firms to register for taxes?

Abstract not found

Based on unique panel data consisting of both formal and informal firms, this paper examines the relationship between legal status and firm level outcomes in micro, small and medium enterprises (SMEs) in Vietnam. Using a matched double difference approach, we investigate whether formalization is associated with a change in profits, investments, access to credit and the status of workers, controlling for initial conditions or time-variant factors that may simultaneously influence the decision to formalize and subsequent firm performance. We find causal evidence that becoming officially registered leads to an increase in profits and investments, and a decrease in the use of casual labor thereby improving contract conditions for workers. Moreover, formal firms have better access to credit. Thus, we conclude that formalizing is beneficial both to firms and the workers in these firms. JEL Classification: J24, O17, O53