Case study I: Simplified tax regimes and their impact on social insurance in Uruguay

Abstract

In Latin America, the most unequal region in the world, informality is the way of life for many Micro and Small Enterprises (MSEs) and for workers who hold informal employment arrangements within these businesses. In order to reduce informality and increase revenue, most countries in the region have implemented simplified tax regimes for MSEs in recent decades. Given that there is a difference between formalizing business and formalizing employment arrangements, this research investigates whether simplified tax schemes for MSEs affect formalization of employment arrangements within MSEs. By analysing the Uruguayan case from 2006 to 2016, the study shows that many MSE workers may remain informal despite working within formal MSEs. Therefore, this investigation points out that simplified tax regimes might not have the envisioned impact on formalization of employment arrangements, hampering the access of these workers to social insurance schemes.