that the income of previous wage earners decreased after the reform, possibly because business owners passed on the decline in prices to their workers. Interestingly, the results do not show an increase in income for the wage earners who opened a business. One possible explanation is that these new entrepreneurs are still paying o¤ the ...xed cost of opening their business during the period of observation. Previous wage earners are observed for a maximum of 4 quarters after the reform. Finally, the income of the previously unemployed and out of the labor force increased after the reform, by about 6 percent.

Overall, this paper illustrates that the e¤ects of a business registration reform are positive and potentially important. These ...ndings match related within-country studies on the impact of reforms. Bertrand and Kramarz (2002) examine what happens to employment growth in the retail trade industry in France after the introduction of zoning regulation which restricts the establishment of large retail stores. Exploiting regional variation in the enforcement of this regulation, they show that stronger deterrence of entry decreased employment growth. Moreover, the World Bank’s Doing Business reports include suggestive evidence on the positive impact of business registration reforms. Doing Business in 2005 states that the top 5 reformers in 2003 - Ethiopia, France, Morocco, Slovakia and Turkey - have experienced higher increases in new registrations than the OECD average. Doing Business in 2006 documents that business entry jumped up in several countries by 10 to 42 percent following a reform of registration procedures. The ...ndings of this paper also lend support to the recent attention that policy institutions and governments have paid to business registration reform as a possible vehicle to foster economic development.

Concurrently to this paper, Kaplan, Piedra, and Seira (2006) have investigated the e¤ect of the same business registration reform in Mexico on ...rm creation. A key di¤erence to my paper is that they use registration and employment data from the Mexican Social Security Institute (IMSS), while my paper uses household data from the Mexican Labor Market Survey. One disadvantage of the IMSS data is that it does not capture registered ...rms without employees since owners do not typically register themselves with social security<sup>5</sup> . Another disadvantage is that not all registered ...rms with employees are in the IMSS database since a signi...cant fraction of owners does not register their workers with the IMSS. Consequently, the estimated increase in the number of registered ...rms in Kaplan, Piedra, and Seira is 7.6 times smaller than the increase in the number of registered ...rms estimated in this paper. Another di¤erence to Kaplan, Piedra, and Seira is that I am able to provide direct evidence that newly registered ...rms are not previously existing informal ...rms, but instead new ...rms created by former

> 5 According to my data, in the pre-reform period, 40 percent of registered businesses and 79 percent of unregistered businesses had no employees. Among registered ...rms without employees, less than 0.2 percent of owners were also registered with IMSS.

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