Small Business Tax Policy, Informality, and Tax Evasion – Evidence from Georgia

34 Pages Posted: 29 Sep 2014

See all articles by Miriam Bruhn

Miriam Bruhn

World Bank - Development Research Group (DECRG)

Jan Loeprick

Vienna University of Economics and Business; World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

Using a panel of administrative data and regression discontinuity analysis, this paper examines how the introduction of preferential tax regimes for Georgian micro and small businesses in 2010 affects formal firm creation and tax compliance. The results show that the new tax regime for micro businesses increased the number of newly registered formal firms by 18–30 percent below the eligibility threshold during the first year of the reform, but not in subsequent years. The analysis does not find an effect of the new tax regime for small businesses on formal firm creation in any year. Policy makers are often concerned about abuse risks stemming from differentiated tax treatment of micro and small businesses. The analysis in this paper reveals reduced tax compliance in 2010 around the micro business eligibility threshold, but does not find significant evidence of reduced compliance by Georgian firms in later years. The results also do not show any significant evidence of strategic sorting around the regime eligibility thresholds.

Suggested Citation

Bruhn, Miriam and Loeprick, Jan, Small Business Tax Policy, Informality, and Tax Evasion – Evidence from Georgia (2014). WU International Taxation Research Paper Series No. 2014 - 10. Available at SSRN: https://ssrn.com/abstract=2500783 or http://dx.doi.org/10.2139/ssrn.2500783

Miriam Bruhn (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Jan Loeprick

Vienna University of Economics and Business ( email )

Wien
Austria

World Bank ( email )

Wien
Austria

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