A significant part of the literature on private enterprise development has focused on the issue of informality and the impact of easing business start-up regulations, yet there is less evidence on the formalization of smaller enterprises. This project examines the ‘entreprenant’ status in Benin, a legal status that applies to a physical person running a small business with a limited turnover and grants specific formalization incentives to informal businesses.
The study will exploit the ongoing implementation of this entreprenant status to examine whether firms voluntarily move into the formal sector if costs of formalization are reduced; to what extend the fear of tax administration is an important barrier to formalization; and the effect of becoming formal on firm performance and access to credit. The research team will implement a randomized controlled trial to assess the impacts of different incentive packages on formalization decisions and firm outcomes. They will split informal business into three treatment groups, each being offered a different package of incentives to formalize such as business training or a streamlined business registration process, and one control group in order to determine the most effective package.
As this impact evaluation is being conducted at the request of the Government of Benin, who has been participating in all phases of the design, the results of this experiment will have direct policy impact. After completion of the evaluation, the package of incentive that will result as being more successful in attracting informal businesses to the formal sector will be scaled up and adopted by the Government as the official entreprenant status. As this entreprenant status has been introduced in 17 West African states, it is highly likely that the lessons learned through this impact evaluation will have broad policy relevance throughout the region.
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