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Conclusion The varied nature of informality in EMDEs indicates the need for policy mixes that are appropriate to each economy’s circumstances. Cross-economy experiences also highlight the importance of the right policy mix. Policies that have been successful in addressing informality fall broadly into four categories: investing in human capital, improving access to resources, easing regulatory and tax burdens, and strengthening governance. •
Investing in human capital. In Côte d’Ivoire and Pakistan, for example, training programs boosted worker income and firm revenue in the informal sector (Burki and Abbas 1991; Verner and Verner 2005).
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Improving access to resources. In Bangladesh and Kenya, providing informal firms with better access to markets or finance helped increase firm profitability and investment, easing transition to the formal sector (see, for instance, DonouAdonsou and Sylwester 2017; Imai and Azam 2012; Sonobe, Akoten, and Otsuka 2011).
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Ease regulatory and tax burdens. Policies to reduce tax rates and simplify tax systems have incentivized firms to transition to the formal sector in countries such as Colombia, Egypt, Mexico, and Russia (see, for instance, Bruhn 2011; Fernandez and Villar 2016; Gatti et al. 2014; Slonimczyk 2012).
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Strengthen governance. In Georgia, during 1996-2016, the transition to a market economy brought significant improvements in government effectiveness, control of corruption, and law and order (World Bank 2019b). This was accompanied by a steep decline in informality.
The COVID-19 pandemic has taken an especially heavy toll on informal workers, who have not only faced severe income losses but also been difficult for social safety nets to reach to offset some of the income losses. Restrictions on physical interaction and mobility, to impede the spread of the virus, have been difficult to enforce for informal workers because many already live on the cusp of poverty, in turn blunting the public health benefits of lockdowns (Alon et al. 2020). With good policies, effective enforcement of sensible regulations can help reduce the presence of the informal sector (Loayza 2018). In Brazil, labor inspections helped induce informal workers and firms to formalize (Almeida and Carneiro 2012; de Andrade, Bruhn, and McKenzie 2013). In ECA, better control of corruption reduced the extent of informal activities in the countries that joined the EU in the mid-2000s (Fialová and Schneider 2011). In SSA, policies have focused on unlocking the latent economic potential of the informal sector through investing in human capital and improving access to resources to increase labor productivity. Such policies offer a pathway for informal firms to improve product quality and participate in formal-economy supply chains. In contrast, in ECA, LAC, and non-GCC MNA economies, successful policies have centered around easing regulatory and tax burdens and building more effective and
