An exceedingly simple answer

Oscar Calvo is an economist who works on economic policy for the Latin American and Caribbean region here at the World Bank. He shared with me some interesting research on the determinants of informality in Peru. Oscar and his team conducted a survey of 802 micro and small firms, both informal and formal, and came up with the following chart (below the jump) on the benefits of being registered to pay taxes. (The RUC number is the firm’s tax ID).

Of the five possible answers, the most popular is "to comply with the law." The next most popular answer is "to avoid fines." Access to credit, the subject of this post and this post, is only the fourth most popular answer.

Come to think of it, that’s why I pay my income taxes. First, the law says I have to. Second, the government will fine the heck out of me if I don’t.