Impact of the National Simples on the Employment of SMEs in the State of Pernambuco

Abstract

This article aims to investigate whether Simples Nacional has resulted in higher levels of employment for SMEs that benefit from the simplified tax regime and the lower rates of contributions and taxes levied on companies in Brazil. By focusing on the company, it can be said that the tax waiver generated by Simples differs from the traditional regional tax incentive policies adopted in Brazil. However, it is expected that the states that have the economy most dependent on MSEs, will be the most favored by a policy directed to these companies. For that, we used the microdata identified from RAIS-ME (2002 to 2014), from which it was possible to estimate regression models with controls for the observable and unobservable characteristics of the firms and, also, locational ones. The object of analysis was one of the main economies of the Northeast Region, the state of Pernambuco, due to the fact that MSEs have a relative importance for the generation of employment and income in the state, consolidating themselves in productive centers, specialized in services (Medical and Technological) and industrial/trade (Textile/Clothing). Furthermore, working with a sample of companies that are exposed to similar economic and fiscal factors minimizes possible biases caused by omitted variables. The results found indicated that the companies that are in Simples Nacional generated, on average, approximately 19% more employment, when compared to the control group, being this effect even greater for companies that spend more uninterrupted time in Simples. These results are valid even after the incorporation of fixed and time-based controls of companies and locations, suggesting that the policy has a positive impact on the formal labor market in the state.