Exit from Informality: The Stick Treatment

Research Note
Published on 7 February 2017


Most firms are informal throughout the developing world; and most small and medium enterprises (SMEs) (60-80%) do not register with tax authorities, lowering the tax base. This remains a persistent phenomenon despite the numerous attempts made to encourage registration. While those interventions focused largely on a carrot approach, we tested the effectiveness of a stick intervention. The latter involves threat of fines if caught SME still not registered after a grace period. Our intervention increased the rate of registration, but the overall number of registered firms remained quite small.