Firm Exit and Suspension in Developing Countries: Evidence from a Household Business Tax Census in Vietnam

Abstract This paper studies the survival dynamics of household businesses in a developing country context using a high-frequency database of tax-registered firms in Vietnam. We document new stylized facts on firm turnover by distinguishing between permanent closures (exit) and temporary suspensions of operations—an important, yet often overlooked, margin of adjustment. While annual permanent closure rates for tax-registered household businesses are relatively low at 4–5 percent, temporary suspensions are far more prevalent: approximately a quarter of firms suspend operations each year, with an average duration exceeding 2.5 months. Suspension filings display strong seasonal patterns and serve as leading indicators of eventual exit. We exploit the COVID-19 pandemic as a quasi-natural experiment to show that household businesses suspend operations to cope with unanticipated shocks, and document sharp but short-lived increases in suspensions, particularly in services and occupations requiring high levels of face-to-face interaction. The findings highlight the importance of incorporating temporary suspensions into firm dynamics analyses and underscore the value of tax-based administrative data to study small business behavior in developing economies.