Advantages of formalization
- Increased tax revenues for the government due to better reporting under taxation laws
- Coverage of population under social protection plans, saving from financial distress during difficult times
- Increase workers’ welfare and the opportunities for decent jobs
- Reduce unfair competition between formal and informal enterprises arising from tax or regulatory arbitrage
Downsides of formalization
- Exclusion of population, if knee-jerk steps are taken e.g. demonetization
- Poverty and destitution as rapid formalization imposes additional costs on informal economy
