While a basic theoretical principle in public economics assumes that individuals’behaviour is fully- optimizer with respect to the introduction of a tax, an increasing body of research is presenting evidence that agents decision-making is often affected by non-negligible cognitive biases ,...

This paper evaluates the effects of a fall in payroll taxes on employment and wages in the presence of high labor informality. For that purpose, the paper examines a recently approved tax reform in Colombia especially targeted to promote labor formality. The model suggests that the reform would...