In Simple Words
Lowering the entry fee for a marathon doesn't convince people already running in the woods to join the official race; instead, it encourages spectators on the sidelines to start running for the first time.
Eligible businesses in Mexican municipalities
- Before or awaiting reform
- Comparison for the reform
- Simpler entry rules introduced
- More registered businesses
Staggered municipal reform, not random assignment. New businesses came from former wage earners; existing informal owners showed no clear registration gain.
See source →Study conditions — Bruhn, World Bank WPS4538 ↗Research question
Simplifying business startup registration is often intended to formalize existing informal businesses, but fails if pre-existing informal firms lack the productivity to benefit from registration.
Participants
Business owners and wage earners across municipalities in Mexico undergoing SARE licensing reform (Bruhn, 2011; Kaplan et al., 2011).
Study Design
Quasi-experimental roll-out evaluation of simplified municipal licensing reforms.
Results
Startup simplification increased the total number of registered businesses by encouraging former formal salaried workers to launch new enterprises, but had zero effect on the registration likelihood of pre-existing informal firms.
Takeaway
Pair startup registration simplification reforms with targeted productivity-enhancing services to effectively convert established informal firms.
Source and citation
See source →Evidence in Labor Market Policies and Implications for Brazil: Informality
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