Effects of the tax and fiscal policies on the size of the informal sector in Colombia

This article studies the potential effects of changes in the tax and fiscal policies on the size of the informal sector in Colombia. To do this, we have developed a dynamic general equilibrium model. The results indicate that the Government, through the reduction of tax rates and increasing audits for companies, can reduce the size of the informal sector. It is also concluded that elevated levels of informality do not mitigate the Government's capacity to increment its tax-based incomes.