On the doorstep of formality: different solutions for different informalities

Informality is a corrosive phenomenon for taxes, production, competitiveness, and society I general, but it is also the only livelihood option for some population groups. This report analyses how informality affects inclusive growth, studying informality by different socio-economic groups, and presents policy recommendations for each of these groups. In the case of Colombia, informality is very heterogeneous so it must be addressed through various strategies ranging from better education in the poorest segments, to more flexible formal jobs, to the implementation of better monitoring and control of higher income independent workers. Faced with restrictions on entry into the formal sector in Colombia, we found that the reduction in 2013 in payroll taxes was a successful policy. However, further reductions in these contributions must consider their impact on tax collection, given the difficult fiscal situation in the country.