Williams, C. orcid.org/0000-0002-3610-1933 and Yalaman, G.Ö. (2021) Explaining the informal economy in Western Europe: beyond a rational economic actor perspective. Journal of Economic Studies, 48 (5). pp. 1084-1096. ISSN 0144-3585
Abstract
Purpose
The dominant theorisation of the informal economy views participants as rational economic actors operating in the informal economy when the expected benefits exceed the perceived costs of being caught and punished. Recently, an alternative theory has emerged which views participants as social actors operating in the informal economy due to their lack of vertical trust (in governments) and horizontal trust (in others). The aim of this paper is to evaluate these competing theorisations.
Methodology
To do so, data are reported from special Eurobarometer surveys conducted in 2007, 2013 and 2019 respectively in eight West European countries (Austria, Belgium, France, Germany, Ireland, Luxembourg, Netherlands and the United Kingdom).
Findings
Using probit regression analysis, the finding is that increasing the expected likelihood of being caught and level of punishment had a weak significant impact on the likelihood of participating in the informal economy in 2007, and no significant impact in 2013 and 2019. However, greater vertical and horizontal trust is significantly associated with a lower level of participation in the informal economy in all three time periods.
Practical Implications
The outcome is a call for a policy to shift away from increasing the expected level of punishment and likelihood of being caught, and towards improving vertical and horizontal trust. How this can be achieved is explored.
Originality/value
Evidence is provided in a Western European context to support a shift away from a rational economic actor to a social actor approach when explaining and tackling the informal economy.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020, Emerald Publishing Limited. This is an author-produced version of a paper subsequently published in Journal of Economic Studies. This version is distributed under the terms of the Creative Commons Attribution-NonCommercial Licence (http://creativecommons.org/licenses/by-nc/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. You may not use the material for commercial purposes. |
Keywords: | informal sector; tax compliance; public policy; Western Europe |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 04 Sep 2020 10:37 |
Last Modified: | 25 Jan 2022 11:49 |
Status: | Published |
Publisher: | Emerald |
Refereed: | Yes |
Identification Number: | 10.1108/JES-05-2020-0233 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:164984 |