Sebastian Galiani, Camila Navajas Ahumada, Marcela Meléndez, 10 August 2015

Informality is widespread in most developing countries. A challenge for governments is to lure informal firms into the formal economy. This column presents evidence from an experiment designed to induce formalisation in Colombia. Assistance through the bureaucratic process and the removal of the fixed costs of formalising increased the likelihood of formalisation. However, this effect did not persist over time, with many firms returning to the informal sector when minimal fixed costs came back into effect.

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