Many countries have special tax regimes for small businesses or specific economic sectors. The goal is usually to reduce compliance costs, but also to reduce inequality since it is assumed that owners of small businesses are generally low-income taxpayers. However, they also create opportunities to hide income and avoid taxes.

To study the magnitude of tax avoidance of special tax regimes in Chile and their effects on horizontal equity, I use administrative data from the Chilean IRS to simulate a tax reform that replaces them with a cash flow tax for small firms.

The results show that a reform of this type would have positive effects, especially in terms of horizontal tax equity as 85.6% of the profits from firms under presumptive taxes and 77.6% of the profits from the small firms under special tax regimes, belong to taxpayers in the top income decile.

Simplified tax regimes exist in almost every country and most often rely on revenue taxation, which lowers the registration cost but distorts input demand, such as labor. We exploit a policy introduced in 2018 called "Factor R" that created a massive tax notch based on the payroll-to-revenue ratio. If a firm has a payroll-to-revenue ratio above 28%, the revenue tax rate drops from 16% to 6%, shifting the whole Factor R distribution. Moreover, this policy created two clean quasi-experiments. Firm owners below 28% pre-policy have strong incentives to increase their Factor R, which they do entirely by shifting dividends to wages rather than increasing employment. Firm owners above 28% pre-policy become automatically eligible for the tax cut, show no increase in employment, but a large revenue elasticity, which is most likely explained by a reduction in underreporting.

A large informal sector creates hard-to-tax firms. However, such firms due to their imports are observed by the tax authority. Using an institutionalised policy which seeks to regularize non-compliant and inconsistent filing firms through a bespoke border tax in Zambia, we examine the effects of this Advance Income Tax (AIT) on firm registration and tax compliance. Our identification strategy relies on difference-in-differences designs to causally estimate these effects across the rate hike, discontinuation and reinstatement phases of the AIT policy. Results show limited effects on formalization but significant effects on consistent filers after paying AIT. With a focus on small scale enterprises, we conclude that such reforms are likely to improve firm registration and compliance if ex-ante evasion is large.

Most entrepreneurs operate without employees. Hiring may be unprofitable for them, but they may also be reluctant to pay the one-time costs of becoming an employer due to attentional costs, risk aversion, or credit constraints. We examine the extent to which a temporary subsidy to hire first employees induces entrepreneurs to become employers in a large-scale randomized experiment. The experiment offered to 34,500 randomly selected non-employer entrepreneurs e10,000 to cover 50% of the wage costs of first employees. We find a 20% increase in the fraction of firms that hire workers, with effects of similar magnitude on wage costs and number of employees. The effects stay positive at 7% after the subsidy period, indicating that the temporary subsidy created new permanent employers. Our results suggest that frictions in hiring first employees can be an important barrier for employer entry and firm growth.