Taxation, informality and labour markets

This research focuses on the welfare impact of taxationinduced
changes in labour formality. Whether labour
formalization should be a priority for governments in sub-
Saharan Africa is a contested debate: although informal
employment is posited as less productive, the excessive
pursuit of labour formalization may decrease welfare
among low-income workers. In 2023, the Government of
Rwanda implemented a reform to the payroll tax threshold,
affecting the incentive to becoming a formally employed
worker. I use discontinuities in the empirical distribution of
reported income to estimate a regression discontinuity
design and a shift-share instrument to study the individual
and local labour market consequences of the policy,
respectively. This research will provide evidence to tax
policy design in contexts with both formal and informal
labour markets, where evidence on the welfare impact of
payroll tax threshold reform is lacking.