Does it pay for microentrepreneurs to formalize?

The World Bank's Private Sector Development blog discusses the findings of a new study on the informal sector in Bolivia by IPA Research Affiliate David McKenzie:

"Do Marginal Firms in Bolivia Benefit from Formalizing?"

"David McKenzie and Yaye Seynabou Sakho have written a great piece explaining both why some firms choose not to formalize and what the benefits of formalization might be. You can read a short version here and a longer version here. The authors find that Bolivian firms that are located close to a tax office are more likely to formalize. This finding is further evidence that initial registration costs and/or lack of information affect firms’ decisions to formalize..."