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The Impact of Tax Asymmetries on Labor and Business Informality: The Case of Colombia
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Autores
Fernández Mejía, Cristina
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Fecha
2025-01-30
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Universidad del Rosario
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Abstract
This paper illustrates how two well-indented policies to reduce informality, such as the income tax waiver for small firms and the income tax deduction of labor cost, end up generating a large number of small firms hiring workers, most likely unskilled, without a formal contract. This paper also shows the difficulties in reducing informality in the complex regulatory environment of Colombia. Policies oriented to reduce labor informality have a limited impact and are costly from the fiscal point of view; policies oriented to reduce business informality are more effective, but do not necessarily reduce labor informality if they are directed towards low-productivity firms. The methodology used to illustrate these facts was the estimation of Ulyssea (2018) for the case of Colombia, in an environment of asymmetric tax and social security regulations.
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Keywords
Informality , Firm informality , Business informality , Informal labor market , Taxonomy of informality , Policy recommendations for informality
