Tackling the urban informal economy: some lessons from a study of Europe’s urban population

The aim of this paper is to evaluate the most effective way of tackling the urban informal economy. It has been recently argued that the conventional rational economic actor approach (which increases the costs of participating in the urban informal economy so that they outweigh the benefits) should be replaced or complemented by a social actor approach which focuses upon improving tax morale. To evaluate the effectiveness of these supposedly alternative approaches to tackling the participation of urban populations in the informal economy, we report the results of face-to-face interviews conducted in 2013 with 17,886 urban dwellers across the 28 Member States of the EU. Multilevel logistic regression analysis reveals that both approaches are effective in significantly reducing the urban population’s participation in the informal economy. When tax morale is high, however, the rational economic actor approach of increasing the costs has little impact on reducing the probability of engagement in the informal economy. The paper concludes by calling for greater emphasis on improving the tax morale of the urban population so as to tackle the informal economy in the urban areas of Europe and beyond.