The Colombian government recently reformed the tax law by reducing payroll contributions from
29.5% to16% and substituting them with a profit tax. The law was passed in December 2012,
and three years later the informality rate had diminished from 63% to 60% in December 2015
(GEIH2
). In the 13 main metropolitan areas the reduction was a little more pronounced, going
from 51% to 47% (Gran Encuesta Integrada de Hogares, GEIH). This period was also
characterized by high, yet also diminishing growth rates; changes in the tax rates, and
increasing real minimum wages. It is of the most interest to know how much of this reduction
was due to the tax reform. This paper performs this task using a Matching and Difference in
Differences methodology. According to the results, the tax reform reduced the informality rate,
of the workers affected by the reform, in 7.7 p.p. which translated in a reduction of the
informality rate of the country of 3.4 p.p. given that the treated population was only 44% of the
working population in the country. The reform affected mostly salaried workers and employers,
males between 25 and 50 years old and workers with high school studies.