17 Aires Center for Population, Employment, and Development, stressed in 2017 that, “we’ve reached a point where the only way to solve the problem is through major changes” (Koop, 2017). The administration has a strong incentive to increase formalization, which would realize higher tax returns, in turn strengthening the overall economy. To do so, the government needs to create long-term plans to tackle root causes of informality and transition employees to higher wage, formal jobs. Recommendations The informal sector is powered by many moving parts that are difficult to change and control at once. Other countries around the world provide case studies for how Argentina might transition informal workers and companies to the formal sector. Evidence from successful changes in other nations suggests approaching policy transitions via five key channels: (1) diminishing tax burdens both on workers and on companies, (2) reducing complexity and time of paying taxes, (3) reducing rigidity of labor laws within the formal sector, (4) vastly increasing educational and training opportunities, and (5) improving working conditions for the informal sector. The combined goal in tackling these five focus areas is to transition informal workers to the formal economy while ensuring current informal workers have opportunities to grow and have safe labor conditions. First, the most important area of focus is on reducing the tax burden. The largest tax is the social security tax (17%–21% for companies and 14% for individuals) and should be decreased so it ismore affordable for employers and employees to join the formal sector. A reasonable target might be the average rate in Latin America, which is approximately 12%. A lower rate would generate more opportunities for employers to move to the formal sector and as a result create a wide variety of jobs in the formal sector. Argentina also could reduce its VAT rate to around 13%, which is the average rate in Latin America (KPMG, 2020b). Reducing this rate would make it cheaper to purchase goods formally and consequently more likely that employers buy and sell their goods in the formal market. For example, Brazil launched a formalization program and found that, by reducing their tax burden, more informal companies transitioned to the formal sector (Rocha et al., 2018). Reducing both tax burden and tax complexity is crucial to formalizing Argentina. The reduced amount of money from lowering the tax rates likely would be offset by the increased quantity of employers able to pay taxes. Second, in order to reduce the complexity of paying taxes, the number of payments and the time it takes employers to file and pay taxes need to be reduced. Success elsewhere indicates that Argentina could implement new and better technology to file and pay taxes. Countries such as Brazil and Israel have implemented new technologies and significantly reduced the number of payments necessary, which have reduced the time to comply. Argentina could move frommonthly to bimonthly tax payments, reducing the number of payments from ten to six, which would simplify the process. Changes in the number of payments and a reduction in time to comply are correlated. Argentina’s tax administration would need to invest in digital technologies in order to facilitate the filing and payments of taxes, automate analysis of data from taxpayers, and improve communication between taxpayers and administrations. Providing VAT refunds, like Argentina has recently started to do for small businesses, has provided improvements in the post-filing process for many other countries (Weeghel et al., 2020). As a result, this law decreases the number of VAT payments necessary for small businesses. The time to comply with VAT taxes often increases a system’s complexity. Third, reducing the rigidity of labor laws is crucial to transitioning informal employers to the formal economy. The government should collaborate with unions and attempt to reduce the amount of required severance pay and diminish the thirteenth month bonus program. These two benefits present the largest barriers for employers in hiring and firing employees, making it difficult to operate their businesses in the formal sector (Weeghel et al., 2020). A fourth key consideration in transitioning informal workers to formal workers is improved access to education and skilled training for informal workers. Approximately one-third of informal workers in Argentina completes only primary school or less (see Table 1). This
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