Case Study
Reducing Informality among Firms in Minas Gerais, Brazil
Minas Gerais Formalization
Program
Global Workshop on
Development Impact Evaluation
in Finance and Private Sector
Rio de Janeiro, June 6-10, 2011
Descomplicar “Uncomplicate”
Government Initiative

Created in 2007

Mission: Promote a policy environment that is conducive to
economic development, by reducing bureaucracy, providing
smart and high-quality government services, and by
generating public value added for Minas Gerais State

Main goal is to "uncomplicate" the relationship between
 State-State
 State-Firms
 State-Citizens
Firm Formalization

Given high levels of informality among firms, 0ne goal of
Descomplicar has been to encourage firm formalization

Conducted an informal firm survey to obtain information on
the barriers to formality from the firms’ perspective

Most frequently reported barriers were
 High tax burden
 Too much bureaucracy
 High costs of firms registration
 Lack of financing
 Lack of information about benefits of being formal
Firm Formalization
Program - Partners

Descomplicar is working with public and private sector
institutions to reduce the reported barriers to formality
Business Registration
Reform

One of the first policy actions was to simplify business
registration procedures
 Created a one-stop-shop that conducts municipal, state, and federal
registration at the same time, in the same place (“Minas Fácil”).

However, many firms remain informal – why?
 Informal firms are not aware that the simplification took place
 Other barriers to formalization (remaining registration fees, taxes,
lack of financing, lack of information on the benefits of being formal)
 Is formalization truly beneficial for firms (i.e. does it improve firm
performance)?
-> Try to shed light on these issues with an impact evaluation that can
inform which (complementary) policy actions to take in the future
Impact Evaluation

Conduct an impact evaluation to measure which of the
following interventions is most effective at encouraging firm
formalization
1.
2.
3.

Providing information on the costs and benefits of formalization,
financing sources, as well as on the simplified registration process
Providing the information above + paying registration fees for firms
Stepping up tax inspections/enforcement
If firms formalize as a results of these interventions, this also
allows us to measure the impact of formalization on firm
performance
 Intervention 3 is included in part to ensure that some firms will register
Study Design Intervention
First, conducted a listing exercise to obtain a list of informal firms
located in 605 city blocks
 Then, randomly assigned these 605 blocks into three groups

Number
of Blocks
Control Communication
Firms
Only
Communication
+ Free Cost
Inspector
Visits
Communication Block
202
550
544
548
0
Inspector Block
202
523
0
0
522
Control Block
201
579
0
0
0
Within blocks, randomly assigned firms to intervention or control
groups
 Control firms within bocks will allow us to measure spillover
effects within blocks (by comparing control firms in intervention
blocks to firms in control blocks)

Listing
2564 census blocks
619 blocks rolled
7852 informal firms found
2221 firms randomly
selected to baseline
 522 firms randomly selected
for inspection




Communication only
Control in Communication Block
Control in Control Block
Control in Inspector Block
Free cost
Get Inspector
Information brochures designed
Informal Firms in the Study

48% in
Number of Informal Firms
Commerce
3765
47,95%
Services
3493
44,49%
Industry
100
1,27%
N/A
494
6,29%
Total
7852
100,00%
Number of Employees
Commerce 10539
71,03%
Services
3979
26,82%
Industry
185
1,25%
N/A
134
0,90%
Total
14837 100,00%
Baseline

http://velp.dnsalias.org:8080/vquest_seplag
Future influence on policy

How will the IE results influence policy in the
near future?
 Taxes reduction studies
 Informative campaign to all informal firms
 Inspections policies
Remaining learning gaps

What remaining learning gaps will the team
want to address next?
 What is the impact of the simplifying the process
of closing a firm on formalization levels?
 What is the impact of simplifying the access to
credit on formalization levels?
Obrigada!
Priscila Malaguti
[email protected]
Milla Fernandes
[email protected]
Gustavo Andrade
[email protected]
Alex Barbosa
[email protected]