Working Paper: NBER ID: w18019
Authors: Suresh De Mel; David McKenzie; Christopher Woodruff
Abstract: We conduct a field experiment in Sri Lanka providing informal firms incentives to formalize. Information about the registration process and reimbursement of direct costs has no effect. Payments equivalent to one-half to one month (alternatively, 2 months) of the median firm's profits leads to registration of around one-fifth (alternatively, one-half) of firms. Land ownership issues are the most common reason for not registering. Follow-up surveys 15 to 31 months later show higher mean profits, but largely in a few firms which grew rapidly. We find little evidence for other changes in behavior, but formalized firms express more trust in the state.
Keywords: informal firms; formalization; Sri Lanka; field experiment
JEL Codes: O14; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Land ownership issues (Q15) | Registration of informal firms (L26) |
| Formalization (L23) | Increased trust in local government (H70) |
| Formalization (L23) | Perception of civic duty regarding tax payments (H26) |
| Registration of informal firms (L26) | Higher profits (D33) |
| Providing information about the registration process and reimbursement of direct costs (I23) | Registration of informal firms (L26) |
| Monetary incentives (M52) | Registration of informal firms (L26) |