Does Formality Improve Micro-Firm Performance? Quasi-Experimental Evidence from the Brazilian SIMPLES Programme

2.1.3 Supportive legal frameworks development, adoption and implementation

Recommendation: 5. Support appropriate and relevant reform of the tax system to accommodate formalisation of IE work. Take into consideration that appropriate reforms may lead to an overall increase in the number of registered firms and possible corresponding increases in employment. Take into consideration that formal enterprises are more productive and profitable when compared with informal ones.

REFERENCE: Fajnzylber & Montes-Rojas, 2009, Does Formality Improve Micro-Firm Performance?  Quasi-Experimental Evidence from the Brazilian SIMPLES Programme, Thematic evaluation, IZA, Bonn.

Evidence sample: In another study, Fajnzylber, et.al. (2009) examined micro enterprise survey data from the 1990s in Mexico and found that registering for and paying tax significantly improved firm profitability. 3) Kenyon and Kapaz (2005) used data from the World Bank’s Investment Climate Survey in Brazil to show that firms that avoid paying tax by not registering are less productive and less likely to access financial markets than other firms.