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Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis

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Gabrieli, T., Galvao, Jr, A. F. and Montes-Rojas, G. V., (2010) Who benefits from reducing the cost of formality? Quantile regression discontinuity analysis. Working Papers in Real Estate & Planning. 11/10. Working Paper. University of Reading, Reading. pp40.

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Abstract/Summary

This paper studies the effects of increasing formality via tax reduction and simplification schemes on micro-firm performance. It uses the 1997 Brazilian SIMPLES program. We develop a simple theoretical model to show that SIMPLES has an impact only on a segment of the micro-firm population, for which the effect of formality on firm performance can be identified, and that can be analyzed along the single dimensional quantiles of the conditional firm revenues. To estimate the effect of formality, we use an econometric approach that compares eligible and non-eligible firms, born before and after SIMPLES in a local interval about the introduction of SIMPLES. We use an estimator that combines both quantile regression and the regression discontinuity identification strategy. The empirical results corroborate the positive effect of formality on microfirms' performance and produce a clear characterization of who benefits from these programs.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:26981
Uncontrolled Keywords:Formality; Micro-firms; Quantile regression; Regression discontinuity
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author. If you wish to quote from or cite any paper please contact the appropriate author; in some cases a more recent version of the paper may have been published elsewhere.

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