Tax Compliance Costs and Employment in SMEs : Evidence from a Size-Dependent Policy in Brazil

Small businesses are important to the economic growth of developing countries. The paper evaluates the causal effect of reducing bureaucracy and the tax burden on small manufacturing firms in Brazil. The identification explored the discontinuity among firms next to the eligibility threshold associated with the Simples Nacional program. Microdata from the Annual Industrial Survey (PIA) were used for the period 2000 to 2012. Results suggest that companies participating in the program have reduced the industrial operating cost by 23%, increased job creation in 21.5% and payroll in 25.18%