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" 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). Discussion prepared by Leora Klapper , Senior Economist, World Bank. 1.

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Presentation Transcript
slide1

"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)

Discussion prepared by

LeoraKlapper, Senior Economist, World Bank

1

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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)
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Where do firms register?

Ratio of Nascent to formal Entrepreneurs

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Who Benefits from Registration?

Is the initial choice to register exogenous?

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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)?