The effectiveness of interventions to reduce informality in low- and middle-income countries

Labor markets in low- and middle-income countries are characterized by high levels of informality. A multitude of interventions have been implemented to increase the formalization of firms and workers, including information campaigns, simplified registration procedures, reductions of payroll taxes, and interventions enforcing formalization. We compile a database of 170 impact estimates from 38 academic studies that evaluate empirically one or more of these formalization interventions. The quantitative analysis correlates the impact estimates of the studies-given as a measure of sign and statistical significance, the effect size or percent impacts-with explanatory factors such as intervention type, outcome variable, scope of the intervention, and contextual factors such as study design and economic context. Several key findings emerge: first, tax incentives are a particularly effective intervention type, and information interventions constitute an important component to combine with other interventions. Second, the outcome "worker registration" shows significantly better results than other outcomes. Third, large-scale policies are more effective on average than singular programs. Fourth, interventions tend to be more effective in a more promising (labor) market context. (C) 2020 Elsevier Ltd. All rights reserved.