Explaining consumer motives to purchase in the informal economy

Abstract

Usually, studies on the informal economy focus mainly upon those working in the informal economy (supply side). However, many exchanges in the informal economy are initiated by purchasers asking how much a good or service costs if paid cash in hand. Therefore, the aim of this paper is to advance understanding of who make purchases in the informal economy and the reasons of the consumers making these purchases (demand side). Two potential explanations are evaluated. Firstly, consumers are explained as rational economic actors seeking a more convenient deal or profit maximisation (i.e., lower price or better value for money), making purchases from the informal economy due to the lack of availability of the product or service they need on the formal market, or they make such purchases involuntarily, due to the lack of perfect information necessary to make a fully rational economic decision when purchasing. Secondly, the consumers are portrayed as social actors pursuing community help. Using a multilevel mixed-effects logistic regression analysis on a 2019 Eurobarometer interviews in 27 EU member states and the UK reveal how the prevalence of these motives significantly varies across populations and regions. The theoretical and policy implications of the findings are discussed in the concluding section.

Cash and the Hidden Economy: Experimental Evidence on Fighting Tax Evasion in Small Business Transactions

“…Yet, the responsibility for making an honest decision about tax compliance is relegated to the seller. In fact, research indicates that participation in the cash economy is often initiated by buyers in transactions (Horodnic et al, 2021;Williams & Kosta, 2020). Reminding buyers of their role highlights the social norm of compliance and the effect that buyers can have by rejecting cash offers, which has an indirect effect on compliance levels.…”

Undeclared activities on digital labour platforms: an exploratory study

“…These include the lack of a working contract or any other legal agreement between the provider and the customer which could deprive the worker of rights and benefits like loans, paid sick leave, health and social insurance, pensions, minimum wage (because workers can connect with customers/ companies from all over the world through these platforms and they might not receive a minimum wage applicable in their country) (Nov akov a et al, 2020;Hoang et al, 2020;Joyce et al, 2019;Heyes and Newsome, 2017;Williams and Horodnic, 2016). Moreover, with undeclared transactions, governments lose their tax revenues, markets encounter an unfair competition between formal and informal businesses (or self-employed workers) and consumers do not have any guarantees or consumer rights for the products/services they buy (Horodnic et al, 2021b;Williams and Horodnic, 2016). Previous research also suggests the need for new analytic approaches to platforms, which emphasize labour force diversity, connections to conventional labour markets, and worker dependence (Schor et al, 2020).…”

“…For example, in a survey conducted by TNS Sofres in France, only 15% of participants said that they have declared their earnings from digital platforms (De Groen and Maselli, 2016). This issue should not be neglected, especially considering that currently, more than 60% of the global workforce is estimated to be involved in informal economy (Deganis et al, 2021;Horodnic et al, 2021b). However, little research exists investigating undeclared work mediated via digital labour platforms.…”

“…Moving on to the informal economy, Horodnic et al (2021b) synthetize extant definitions of this term, stating that it refers to economic activities and transactions that are legitimate in all aspects except the fact that they are undeclared or under-declared to the state for tax benefits or to circumvent other legal obligations. It is important to mention that informal economy does not concern activities which are considered illegitimate in the formal economy (e.g.…”

The influence of product creativity on competitive advantage

“…Competition is a fundamental aspect of the business; arguing from the perspective of a rational economic entity, as per the work of Horodnic et al, (2021), an individual will seek the highest level of economic or personal benefit that they are cognitive of if it maintains a low perceived cost-to-benefit ratio. In simpler terms, where the opportunity for profit exists, people will pursue it.…”