First Call for Proposals

ECON Estudio, a small Colombian company which specializes in applied research, will try to answer this question by implementing a business formalization project in Antonio Nariño, an area of Restrepo, an industrial neighborhood in the outskirts of Bogota.

The project will follow a similar model as “Paths for formality,” a program launched in Cali in 2009 aimed at educating microentrepreneurs on how to enter the formal sector. The program will lower costs, improve access to information and provide training in an attempt to improve the chances of formalization.

ECON Estudio will evaluate the impact of the program and will study which incentives explain an entrepreneur’s decision to enter the formal economy and, thereby, encourage more business registration and greater tax compliance. It will also evaluate how to improve the impact and the efficiency of these kinds of programs.

Participing Institutions: ECON Estudio, Gerencia de Formalización (Ministerio de Industria, Comercio y Turismo) y Departamento Nacional de Planeación

Red tape required to register, operate and close down businesses is one of the main hurdles for business development. FUNDES - a group that helps micro and small businesses in Latin America and the Caribbean become better inserted in the global economy since 1985 -knows this all too well.

In 1999, FUNDES created a Red Tape Simplification Program (PST) that has worked with 97 municipalities and six countries in Latin America, providing training to more than 500 government officials. The results have been significant. Most of the cases saw costs and time reductions of more than 50% - and some cases as high as 80%.

With MAP support FUNDES will add new elements to its methodology – like a better link between national and local levels, a more detailed analysis of the impact of simplification on business cost structure and develop tools for impact evaluation. These changes will be implemented in a pilot program that will help validate the new methodology as it contribution to red tape simplification.

Participing Institutions: FUNDES

According to official estimates almost 80% of Guatemala’s 5 million workers are not registered - one of the highest rates in Latin America and the Caribbean. The Guatemala Managers Association (AGG,) with MAP support will develop a training program to support the formalization of micro and small businesses in indigenous communities.

To change the balance of costs and benefits requires knowledge on management issues, financial and fiscal topics will be offered to selected communities on a trial basis.

Participing Institutions: Asociación de Gerentes de Guatemala (AGG) and Ministerio de Economía de Guatemala

Informality is structural to Bolivia’s economy, where 80% of businesses – which generate 48% of GDP - are unregistered. Econométrica (CE), a center for applied research founded in 1985, will evaluate the impact of formalization on business profits and will analyze the changes to Bolivia’s fiscal simplification policies in the last 10 years.

The research will use home surveys and business registries, along with advanced econometric techniques – propensity score matching and difference in difference – to draw solid conclusions on the determinants of formalization and its consequences.

The results will be presented to Bolivia’s ministries of Development and Production Planification and Small Businesses as policy recommendations.

Participing Institutions: CIESS Econométrica

The study will help government officials quantify the costs and benefits of different fiscal frameworks in terms of tax collection efficiency, job creation and productivity.

Using a general equilibrium model, researchers will evaluate how different sectors with varying degrees of formality, respond to fiscal policy and adapt their behavior to changes in the tax regime.

The project’s goal is to develop simple indicators and estimates to enable a better-informed policy design. The aim is to assist policymakers in dealing with complex issues, such as incentives that lead to tax evasion.

Participing Institutions: University of Colorado and Economic Planning and Research (Planning Institute of Jamaica)

Funding micro and small businesses is hard; funding seed capital is even harder. With MAP support researchers will evaluate the impact of SERCOTEC’s seed capital program.  SERCOTEC is a technical cooperation service for micro and small businesses in Chile.

The study will yield lessons on the effectiveness of seed capital programs for business growth, business mortality and survival rates, new business generation, capital attraction and productivity.

The study’s methodology will be centered on gathering primary information, establishing a control group and statistically comparing the results. It will be one of the few analyses of seed capital in the region, making it very important for future public policy on the matter.

Participating Institutions: Bonilla& Associates, Universidad de Chile and SERCOTEC

Informality is also a key issue in Argentina, where 80% of employees of businesses with 5 or less workers were not registered as of 2005. The government started two administrative simplification programs to combat informality: My Registry, where businesses can register hires, terminations and resignations online, and Your Declaration, where micro and small companies can download from the Internet the forms to pay labor taxes.  Since their implementation the registration of microbusinesses has increased significantly.

This study’s goal is to analyze how both programs contributed to improving registration rates and quantify their impact on business costs to help improve future public policy.

Using surveys and other primary information, researchers will estimate an econometric model to estimate policy impact. The study will yield knowledge that government officials will be able to use to create policies that target informality and support business growth. 

Participating Institutions: IDESA and Universidad Torcuato Di Tella

Ecuador’s Simplified Tax Regime (RISE) was started in 2008. Its goal was to bring at least some of the 1.8 million informal micro and small businesses into the formal sector, an enormous task since they represented 75% of all businesses in 2006, according to government estimates.  The system has registered important results - with registration higher than under the previous system –  yet Ecuador’s tax agency considers RISE has more potential.

Evaluating the  incentives to enter RISE can help improve its design and effectiveness. Using a taxpayer database and surveys to gather primary information, researchers will study what determines taxpayers’ disposition to pay. Their contributions should enable the design of policies that encourage tax compliance.

The Escuela Politécnica del Litoral’s Centro de Investigaciones Económicas (CIEC), in partnership with the Centro de Estudios Fiscales del Ecuador will be in charge of the project.

Participating Institutions: Centro de Investigaciones Económicas (CIEC) de la Escuela Superior Politécnica del Litoral (ESPOL) and Centro de Estudios Fiscales (CEF) del Servicio de Rentas Internas (SRI) del Ecuador