Informal Economy Paper-of-the-Day (Bangladesh)

Given the prevalence of informality among firms in less developed countries, we implemented a randomized controlled trial to investigate the effects of a face-to-face information campaign about the potential legal and economic benefits of registration, and a step-by-step demonstration on how to register. Our treatment followed the informatization reform of the registration system of RJSC in Bangladesh. The reform replaced lengthy and costly registration procedures with online speedy procedures, causing the number of days required for registering a company to decrease from 42 to just one day. We randomly selected a large number of firms to be visited by our team members. About one year after the visit, we re-interviewed the firms. Although our treatment seems to have affected self-declared knowledge of the registration process, it did not affect registration behavior. We find no evidence that information constraints are the main barrier to registration for informal firms. At the same time, given the overall low registration rate among treatment and control firms, we believe that the main barriers to registration are due to the indirect costs and/or the low perceived benefits of registration. In particular, one needs to consider the higher taxes, and possibly stringent regulations, to which a registered firm would be subject. P. 

That is from the conclusions of a paper by De Giorgi & Rahman. It is published here, and a draft is here.