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Payroll Taxes, Social Security, and Informality: The 2012 Tax Reform in Colombia

In: Change at Home, in the Labor Market, and On the Job

Author

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  • Pablo Adrian Garlati-Bertoldi

Abstract

I evaluate how the tax reform of 2012 reduced informality in Colombia both theoretically and empirically. Theoretically, I develop a labor market model and obtain simulations indicating that the reform should reduce informality significantly. Empirically, I obtain difference-in-difference estimates from two household surveys. Estimates from the repeated cross-sections data indicate small, short-term effects and large long-term effects. Estimates from the household survey panel data are in line with these results. I also simulate difference-in-difference estimates with different combinations of changes in payroll taxes and enforcement indicating that large improvements would have been needed to obtain the corresponding econometric estimates.

Suggested Citation

  • Pablo Adrian Garlati-Bertoldi, 2020. "Payroll Taxes, Social Security, and Informality: The 2012 Tax Reform in Colombia," Research in Labor Economics, in: Change at Home, in the Labor Market, and On the Job, volume 48, pages 153-193, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-912120200000048005
    DOI: 10.1108/S0147-912120200000048005
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    More about this item

    Keywords

    Informality; payroll taxes; enforcement; social security; Colombia; difference in difference; cross sectional data; panel data; simulations; D21; H24; H30; J32; J38; J46;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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