In developing countries, such as Paraguay, informality remains a prevalent and persistent issue. Many avoid formal registration with the authorities and evade tax payments. However, a growing academic literature argues for an interrelation between a broader tax base and a countrys economic and democratic development. A strand of this literature focuses on the means of taxing the informal sector and argues for positive revenue and growth effects. This Palgrave Pivot analyses Paraguays 2004 and 2012 tax reforms using both qualitative and quantitative data. It illustrates that the countrys personal income tax, as well as other alterations in the tax system, constitute an incentive and nudging mechanism that leads to a formalisation process of economic activity, and consequently to a broader tax base. Using interview and tax data, the book demonstrates how the reform initiates a rising demand of formalised purchases from both customers and businesses. It further suggests a potentialway of how the taxpayers respond politically to the enhanced fiscal imperative.

Jonas Richter holds an MPhil in Development Studies from Oxford University, UK and a BA in Economics and Business Studies from the University of Stirling. He has since worked at the World Bank. His research interest encompasses firm development, informality, tax-regimes and productive inclusion.