Coming out of the Shadows: Estimating the Impact of Bureaucracy Simplification and Tax Cut on Formality and Investment
This paper evaluates the impact of a program of bureaucracy simplification and tax reduction on formality and investment in small firms in Brazil. We document an increase of 13 percentage points in formal licensing among retail firms created after the program when compared to firms in ineligible sectors. The effect is more prominent in medium-sized firms, those selling to individual customers (in contrast to other firms) and those located in the owner’s house. We also find a positive impact of the program on investment, although it is not related to increased formalization.