Exit from Informality: The Stick Treatment

This paper tests an intervention with threat of fines if businesses enterprises are caught and have not registered after a grace period

Abstract

Most firms are informal throughout the developing world. Most small and medium enterprises (SMEs) (60-80%) do not register with tax authorities, lowering the tax base. This remains a persistent phenomenon despite the numerous attempts made to encourage registration. While those interventions focused largely on a carrot approach, the authors tested the effectiveness of a stick intervention. The latter involves threat of fines if SME are caught and have still not registered after a grace period. Their intervention increased the rate of registration, but the overall number of registered firms remained quite small.

This research was funded under the Private Enterprise Development in Low-Income Countries (PEDL) Programme

Citation

De Giorgi, G.; Rahman, A.; Ploenzke, M. Exit from Informality: The Stick Treatment. PEDL Research Note (2017) 3p

Exit from Informality: The Stick Treatment

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