Brazil - Surveys of Informal Firms in Belo Horizonte 2011-2012

World Bank researchers with the support from local government of Minas Gerais conducted a field experiment to test which state actions work in getting informal firms to register. Brazil began a process of simplification of firm registration in 1996 with the introduction of the SIMPLES tax system which consolidated multiple taxes and contributions into a single payment, and also lowered the tax burden on small firms. Within Minas Gerais, the Minas Fácil service was started in 2005 with the purpose of additionally reducing the number of procedures and time taken to start a business. Minas Fácil is a one-stop-shop system, where firms obtain municipal, state, and federal tax registrations simultaneously instead of having to request these from separate offices.

A listing survey was used to identify potentially informal firms, which were then randomized into four treatment groups and a control group. Survey data revealing a lack of knowledge about how to formalize motivated the first treatment, which was to provide information about how to register by means of a brochure and a dedicated helpline. A second treatment coupled this information with an exemption in the registration fees and free use of mandatory accounting services for a year to test if reducing registration costs would induce formalization. The third treatment randomly assigned municipal inspectors to firms, to see whether increased enforcement would get firms to formalize. The final treatment consists of having a neighboring firm visited by an inspector, to test whether there is a spillover impact of inspection on the formalization behavior of other firms.

The baseline survey took place between May and August 2011. A very short phone survey of firms selected for the communication and free cost treatments was carried out between April 10 and April 18, 2012. The full follow-up survey consisted of an in-person survey fielded between July and September 2012.