Taxation, informality and labour markets

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This research focuses on the welfare impact of taxationinducedchanges in labour formality. Whether labourformalization should be a priority for governments in sub-Saharan Africa is a contested debate: although informalemployment is posited as less productive, the excessivepursuit of labour formalization may decrease welfareamong low-income workers. In 2023, the Government ofRwanda implemented a reform to the payroll tax threshold,affecting the incentive to becoming a formally employedworker. I use discontinuities in the empirical distribution ofreported income to estimate a regression discontinuitydesign and a shift-share instrument to study the individualand local labour market consequences of the policy,respectively. This research will provide evidence to taxpolicy design in contexts with both formal and informallabour markets, where evidence on the welfare impact ofpayroll tax threshold reform is lacking.