The impact of lowering the payroll tax on informality in Colombia

Fernández, Cristina and Villar, Leonardo (2017) The impact of lowering the payroll tax on informality in Colombia. Economía, 18 (1). 125 - 155. ISSN 1529-7470

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Abstract

In 2012, the Colombian Government reduced employer payroll contributions from 29.5 to 16.0 percent. Two years later, the informality rate had diminished by about 4.0 percentage points. This paper attempts to estimate how much of this reduction was due to the tax reform, isolating the impact of other macroeconomic variables. A natural approach to performing this task is to apply a difference-in-differences methodology using a household survey panel. Since the Colombian survey does not have a panel structure, we simulated one using a matching difference-in-differences methodology. According to the results, the tax reform is associated with a 4.8-percentage-point decrease in the informality of workers affected by the reform in the thirteen main metropolitan areas. This represents approximately half the reduction of the relevant informality rate during that period, affecting mostly salaried men and workers in general with low levels of education.

Item Type:	Article
Official URL:	https://economia.lse.ac.uk/
Additional Information:	© 2017 LACTEA
Divisions:	LSE
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HJ Public Finance H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J4 - Particular Labor Markets > J40 - General H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C21 - Cross-Sectional Models; Spatial Models; Treatment Effect Models
Date Deposited:	10 Jul 2024 16:42
Last Modified:	10 Jul 2024 16:42
URI:	http://eprints.lse.ac.uk/id/eprint/123094

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