Regulatory governance and the informal economy: cross-national comparisons

Abstract

This article examines the relationship between state regulation and the informal economy at the macro-level across a broad set of countries. The analysis shows (a) that countries have different types of regulatory environments-varying by the degree of state regulation of economic activity-and the degree to which the state implements and enforces the existing regulations-and (b) that this variation helps explain why some nations have more informal economic activity than others. The findings also suggest that (c) contrary to what the neoliberal orthodoxy has prescribed over the past few decades, decreasing the degree of state regulation in the economy will not necessarily formalize the economy. The degree of regulation seems to have a significant association with the size of the informal economy only in nations with effective law enforcement. Where this is not the case-as in many developing nations-deregulatory policies are likely to be counter-productive in formalizing the economy.

Tackling Entrepreneurship in the Informal Sector: An Overview of the Policy Options, Approaches and Measures

“…The view is that de-regulation reduces the informal entrepreneurship. However, there is growing evidence that decreasing the level of state intervention does not result in a formalisation of informal entrepreneurs but quite the opposite, greater levels of informal entrepreneurship (Kus, 2010(Kus, , 2014Williams, 2013bWilliams, , 2014a. As such, this option is not perhaps viable.…”

Taxing the Informal Economy: Challenges, Possibilities and Remaining Questions*

“…Focusing solely on the question of tax compliance, while informal sector operators may escape national taxation, they are often burdened by several types of fees, charges and licensing costs paid to local governments 3 Some have argued that the size of the informal sector is related to deliberate government policies and regulations that create barriers to entry and related rents that can be easily appropriated through taxation at low administrative costs (Auriol and Warlters 2005). Others suggest that regulation is related to the size of the informal economy only in countries with effective law enforcement (Kus 2010). (de Mel et al 2010).…”

Peripheral accumulation in the world economy: A cross-national analysis of the informal economy

“…Previous studies systematically study cross-national variation in the size of the informal economy, but rely on proxies of the informal economy, such as the size of the service labor force (Evans and Timberlake) or self-employment (Ihrig and Moe, 2001;Loayza and Rigolini, 2011). Based on this limitation in the literature, recent studies use direct and internationally comparable estimates of the size of the informal economy to explain cross-national variation (Djankov and Ramalho, 2009;Ihrig and Moe, 2004;Kus, 2010). This article continues this approach by examining variation in the size of the informal economy across a large cross section of countries from 1999 to 2007 using recently available national estimates of the size of the informal economy (see Schneider et al, 2010).…”

“…According to this view, during periods of economic growth and strong labor market performance, the informal sector contracts as informal producers and workers migrate to the formal sector (Hart, 1973;ILO, 1972). The legalist perspective views the informal economy as an unregulated sector composed of smallscale entrepreneurs trying to avoid the economic burden of overt regulation (De Soto, 1989;Kus, 2010;Maloney, 2004). Based on this argument, conditions of overt economic regulation and lax enforcement incentivize informal petty production, which causes the informal economy to expand.…”