Publication: Increasing Formality and Productivity of Bolivian Firms
Date
2009-06-01
ISSN
Published
2009-06-01
Author(s)
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.
Citation
“World Bank. 2009. Increasing Formality and
Productivity of Bolivian Firms. World Bank Country Study. © World Bank. http://hdl.handle.net/10986/2675 License: CC BY 3.0 IGO.”