Shedding light on the shadows of informality: A meta-analysis of formalization interventions targeted at informal firms

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Abstract

Governments and policy-makers promote formalization through various interventions ranging from simplifying registration procedures to increasing enforcement of the law. But despite various efforts, not much is known about the effects of interventions aiming at formalizing informal firms. This meta-analysis examines the empirical literature on the impact of such formalization interventions. We systematically assessed the literature on the impact of formalization policies resulting in 568 observations from 18 studies conducted by 33 researchers and published until June 2018. We analyzed the meta-impact of (i) cost, (ii) benefit and (iii) enforcement policy interventions and assessed whether the resulting outcomes are influenced by the type of data, econometric approach, and specification as well as publication bias. The findings suggest that policies increasing the benefits after formalization are associated with the highest formalization rates. Yet, the overall impact of the studied policy interventions remains weak when we control for publication quality and method heterogeneity. Overall, we only find modest evidence for increased formalization associated with the so far implemented interventions suggesting that it is high time to consider new approaches in addressing the informal economy.
Original languageEnglish
Place of PublicationThe Hague
PublisherInternational Institute of Social Studies (ISS)
Number of pages37
Publication statusPublished - Feb 2019

Publication series

SeriesISS working papers. General series
Volume642

Series

  • ISS Working Paper-General Series

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