Resource information
The study provides policy
recommendations to increase the productivity of micro and
small firms in Bolivia and to provide incentives for firms
to formalize based on a fresh understanding of firms
behavior regarding formality, productivity, and
profitability. The study draws upon a new qualitative
analysis based on focus group interviews and a new
quantitative survey of 640 firms in six industries. The
survey enables to control for a rich set of measures of
owner ability and business motivations that can affect both
profits and the decision to formalize. The findings show
that tax registration leads to significantly higher profits
for the mid-size firms in the sample, but to lower profits
for both the smaller and larger firms, in contrast to the
standard view that formality increases profits. The
qualitative analysis based on focus groups reveals that
access to capital seems to be the main constraint to
productivity for all micro and small firms. However, the
survey indicates that while registering at the municipal
level improves firms' access to finance, getting a tax
number does not. In the short term, policy recommendations
should focus on increasing the benefits of formalization
through training, access to credit and markets, and other
forms of business support. The second priority in the short
term is to increase information on how to formalize and its
benefits. Measures to boost the productivity of micro and
small firms in general will both help overall economic
growth, employment, and, indirectly, formalization.
