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

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

ISBN: 978-1-83909-933-5, eISBN: 978-1-83909-932-8

ISSN: 0147-9121

Publication date: 23 November 2020

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.

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Acknowledgements

Acknowledgment

I would like to thank Todd Elder for his continuous guidance. To Steven Haider, Scott Imberman, and Eduardo Nakasone for serving in my dissertation committee and their invaluable advice. To Iván Torroledo for his help in carrying out the simulations. I also want to thank Matias Busso, Andrés Escobar, Mónica Uribe, Paula Herrera-Idárraga, Stefano Farné, and Leonardo Bonilla for their helpful comments on the different chapters of this dissertation. To Gabriel Piraquive for his assistance in obtaining access to the data used at the preliminary stages. This work also benefitted from the helpful comments and valuable discussion with the participants of the seminars at the Bank of the Republic of Colombia, Fedesarrollo, APPAM DC student conference, participants of the Pontifical Xavierian University seminars, and participants of the Southern Economic Association conference. I would also like to thank the comments of different referees that have helped improving different aspects of this work. The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Citation

Garlati-Bertoldi, P.A. (2020), "Payroll Taxes, Social Security, and Informality: The 2012 Tax Reform in Colombia", Polachek, S.W. and Tatsiramos, K. (Ed.) Change at Home, in the Labor Market, and On the Job (Research in Labor Economics, Vol. 48), Emerald Publishing Limited, Bingley, pp. 153-193. https://doi.org/10.1108/S0147-912120200000048005

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Emerald Publishing Limited

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