Entrepreneurship in the informal economy: a product of too much or too little state intervention?

Over the past decade or so, two competing theoretical perspectives have arisen that explain participation in informal entrepreneurship as resulting from either too little or too much state intervention. To evaluate these competing explanations critically, the authors report on a 2012 UK survey of 595 small business owners. Twenty per cent of these owners said that they had traded informally when starting up their ventures, and the authors examine and evaluate their reasons for doing so. It was found that 41% of the entrepreneurs attributed their off-the-books trading to too little state intervention (for example, a lack of government advice and support), 35% to too much intervention (burdensome red tape, high taxes, etc) and 24% to a mix of both factors. However, a multivariate analysis displays significant socio-demographic, firm-level and regional variations in the reasons. The outcome is a call to move towards more nuanced context-bound explanations of entrepreneurship in the informal economy

Financial Satisfaction and (in)formal Sector in a Transition Country

This paper examines the relationship between working in the formal or informal sector and self-reported individual financial satisfaction in a country in transition. It does so by allowing for individual heterogeneity in terms of perceived financial insecurity and tax morale. The empirical analysis uses a dataset for Albania, a country in transition. The method applied is the ‘self-administered questionnaire’, which combines personal contacts with written questionnaire. The results indicate that, for most individuals, working in the informal sector has negative effects on their self reported financial satisfaction. For some individuals, however, this effect is positive. The characteristic defining these two groups of individuals is their attitude towards the perceived financial insecurity related to not paying taxes. These findings have important implications, in particular for transition countries with large informal sectors. Given the involuntary participation in the informal sector in these countries, the majority of individuals working in this sector will remain financially dissatisfied as long as they have no other social safety net

Evaluating the participation of marginalized populations in undeclared work in the Baltic Sea countries

To evaluate the ‘marginalization thesis’ which asserts that marginalized populations are more likely to participate in undeclared work, we analyse a 2013 Eurobarometer survey of eight Baltic Sea countries, namely four Western countries (Denmark, Finland, Germany and Sweden) and four post-Soviet countries (Estonia, Latvia, Lithuania and Poland). Finding that across both the western and post-Soviet Baltic Sea countries, some marginalized populations (e.g., those having difficulties paying household bills, younger people) are significantly more likely to participate in undeclared work, and others are not (e.g., women, those with a high level of tax morality), a more nuanced and variegated understanding of the marginalization thesis is developed that is valid across both western and post-Soviet Baltic Sea countries. The paper concludes by discussing the theoretical and policy implications