Abstract

OSORIO-COPETE, Lina Marcela. Tax reform and labor informality in Colombia: A dynamic and stochastic general equilibrium analysis. Ens. polit. econ. [online]. 2016, vol.34, n.80, pp.126-145. ISSN 0120-4483.  https://doi.org/10.1016/j.espe.2016.03.005.

The Colombian Tax Reform of 2012 had as main objective to promote labor formalization. This paper seeks to evaluate the effectiveness of this reform with a dynamic stochastic general equilibrium model calibrated for Colombia. This model has two productive sectors (formal and informal) and a tax structure that captures the major changes of the reform. The results indicate that the new tax policy had a positive impact in reducing labor informality by 2.3 percentage points. Furthermore, when we account for the natural pre-announcement period of any tax reform, variables such as output, consumption, investment and labor informality have the opposite behavior in the short-term when compared to their long-run dynamics. Thus, we find that once the tax reform is announced, an increase in informal employment is observed although this performance was reversed in the long run. We validate this behavior with the observed Colombian data right after the announcement of the reform. This result reflects the importance of including in the analysis the timing of policy changes to explain the response in macroeconomic variables.

Keywords : Labor informality; Fiscal policy Tax reform; Dynamic general equilibrium; Anticipated and unanticipated shocks.

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