Institutions and the Informal Economy: Tax Morale of Small Businesses in Armenia and Georgia

2022 ◽  
pp. 141-175
Author(s):  
Johanna Paquin
Keyword(s):  
Informal Economy ◽  
Small Businesses ◽  
Tax Morale

scholarly journals Evaluating policy approaches for tackling informal entrepreneurship

2019 ◽  
Vol 26 (4) ◽  
pp. 595-611 ◽  
Author(s):  
Ioana Alexandra Horodnic ◽  
Colin C. Williams
Keyword(s):  
Informal Economy ◽  
Small Businesses ◽  
Social Actor ◽  
Actor Model ◽  
Tax Morale ◽  
Content Type ◽  
Face To Face ◽  
Economic Actor ◽  
Informal Entrepreneurship ◽  
Eastern European Countries

Purpose When tackling the informal economy, an emergent literature has called for the conventional rational economic actor approach (which uses deterrents to ensure that the costs of undeclared work outweigh the benefits) to be replaced or complemented by a social actor approach which focusses upon improving tax morale. The purpose of this paper is to explore the effectiveness of these two policy approaches in reducing informal sector entrepreneurship. Design/methodology/approach To evaluate this, data are reported from a 2015 representative survey involving 1,384 face-to-face interviews with owners or managers of small businesses in three South-Eastern European countries, namely, Croatia, Bulgaria and FYR Macedonia. Findings The findings provide support for the “social actor” approach and display that small businesses have a greater propensity to perceive competitors as operating informally when the level of tax morale is lower. Meanwhile, no support for the deterrence measures of the “rational economic actor” model is reported. Research limitations/implications The major limitation of the study is that the paper is not able to display the reasons for the low level of tax morale and horizontal trust. Therefore, further in-depth qualitative research is necessary to explain whether and how the low levels of trust are determined by the failures of various formal institutions. Originality/value This is the first known study on small businesses which analyses simultaneously two distinct policy approaches that aim to reduce participation in informal entrepreneurship.

THE ROLE OF FAMILY START UPS IN THE EMERGENCE OF A SMALL BUSINESS SECTOR IN BULGARIA

2009 ◽  
Vol 17 (03) ◽  
pp. 351-375 ◽  
Author(s):  
DENISE FLETCHER ◽  
EMIL HELIENEK ◽  
ZVETA ZAFIROVA
Keyword(s):  
Small Business ◽  
Informal Economy ◽  
Small Businesses ◽  
Small Firms ◽  
Family Relations ◽  
Entrepreneurial Activity ◽  
The Balkans ◽  
The Family ◽  
Start Ups

It is widely reported that entrepreneurial activity has a significant role to play in transition economies such as Central and Eastern Europe but little is known about the role that the family unit plays in facilitating small business emergence in the former command economies. This is surprising given that the link between family and small business development has been widely researched in market economies. In this study, attention is drawn to the role that family relations and resources play in small business emergence. The study focuses on Bulgaria, a country in the Balkans with much cultural diversity and which became a European Union member in 2007–8. Analysis is undertaken of research material drawn from a survey of 69 small firms. 42% of the surveyed firms are two generation businesses involving the entrepreneur and children or parents. 35% of the businesses are three generation businesses involving the lead entrepreneur, parents, children and siblings. The remaining 33% are firms that are run by couples and/or siblings. This suggests that the family household is the key channel for (and of) small business formation. In neglecting the role of family start-ups, this gives a false understanding to the role that households and families sometimes contribute to the economy. At the same time, it is also partly because of this dependency on family relations and resources that small businesses become rooted in the 'informal economy' — an economy that is based on family favours and which it is difficult to break out of.

Cross-country variations in the participation of small businesses in the informal economy

2016 ◽  
Vol 23 (1) ◽  
pp. 3-24 ◽  
Author(s):  
Colin C Williams ◽  
Ioana Alexandra Horodnic
Keyword(s):  
Informal Economy ◽  
Small Businesses ◽  
Informal Institutions ◽  
The European Union ◽  
Formal Institutions ◽  
Content Type ◽  
Face To Face ◽  
Cross Country ◽  
Laws And Regulations ◽  
Civic Morality

Purpose – The purpose of this paper is to advance a new explanation for cross-country variations in the participation of small businesses in the informal economy. Drawing upon institutional theory, it proposes that the greater the asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the greater is the propensity of small businesses to participate in the informal economy. To analyse this, the extent to which small businesses evade payroll taxes by paying employees an undeclared (envelope) wage in addition to their official declared salary is analysed. Design/methodology/approach – To evaluate this, data are reported from a 2013 Eurobarometer survey involving 5,174 face-to-face interviews with employees in small businesses across the 28 member states of the European Union (EU-28). Findings – The finding is that small businesses display a greater propensity to engage in this informal wage practice in countries where there is a higher degree of asymmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality). A multi-level logistic regression analysis reveals these to be countries which have lower qualities of governance, lower levels of taxation and intervention in the labour market and less effective social transfer systems. Research limitations/implications – The major limitation of this study is that it has only examined whether employees in small businesses receive informal wages. Future cross-country surveys should analyse a wider range of ways in which small businesses participate in the informal economy such as under-reporting turnover. Originality/value – This is the first known analysis of cross-country variations in the participation of small businesses in the informal economy.

scholarly journals An institutional theory of the informal economy: some lessons from the United Kingdom

2016 ◽  
Vol 43 (7) ◽  
pp. 722-738 ◽  
Author(s):  
Colin C Williams ◽  
Ioana Alexandra Horodnic
Keyword(s):  
Informal Economy ◽  
Rural Areas ◽  
Urban Areas ◽  
Age Groups ◽  
Formal Institutions ◽  
Tax Morale ◽  
Content Type ◽  
Values And Beliefs ◽  
The Asymmetry ◽  
The Uk

Purpose – The purpose of this paper is to propose a new way of explaining participation in the informal economy as resulting from the asymmetry between the codified laws and regulations of a society’s formal institutions (government morality) and the norms, values and beliefs of the population that constitute its informal institutions (societal morality). The proposition is that the greater the asymmetry between government morality and societal morality, the greater is the propensity to participate in the informal economy. Design/methodology/approach – To evaluate this institutional asymmetry theory, the results are reported of 1,306 face-to-face interviews conducted during 2013 in the UK. Findings – The finding is a strong correlation between the degree of institutional asymmetry (measured by tax morale) and participation in the informal economy. The lower the tax morale, the greater is the propensity to participate in the informal economy. Using ordered logistic regression analysis, tax morale is not found to significantly vary by, for example, social class, employment status or wealth, but there are significant gender, age and spatial variations with men, younger age groups, rural areas and Scotland displaying significantly lower tax morale than women, older people, urban areas and London. Practical implications – Rather than continue with the current disincentives policy approach, a new policy approach that reduces the asymmetry between government morality and societal morality is advocated. This requires not only changes in societal morality regarding the acceptability of participating in the informal economy but also changes in how formal institutions operate in order for this to be achieved. Originality/value – This paper provides a new way of explaining participation in the informal economy and reviews its consequences for understanding and tackling the informal economy in the UK.

scholarly journals Characteristics of Undeclared Work in Service Sector in Countries of South East Europe

2019 ◽  
Vol 22 (1) ◽  
pp. 107-131
Author(s):  
Predrag Bejaković ◽  
Ruslan Stefanov
Keyword(s):  
Informal Economy ◽  
Small Businesses ◽  
Service Sector ◽  
Tax System ◽  
Informal Work ◽  
East Europe ◽  
Services Sector ◽  
South East Europe ◽  
Labour Intensity ◽  
Undeclared Work

Abstract The undeclared work is a complex and multifaceted phenomenon that has been present in all countries, regardless of its social and political establishment. Notwithstanding, the empirical evidence suggests that informal economy is more prevalent in countries with lower levels of GDP. Furthermore, the informal economy is present in sectors with lower level of capital and higher level of labour intensity. Therefore, the theory and everyday experience imply that the informal economy is more widespread among the services than the goods sectors. This paper provides an overview on the informal work and unofficial economy in the services sector in the former socialist countries in South East Europe. For the reduction of undeclared activities, it is necessary to simplify the procedures for establishing small businesses, to stabilize the tax system, to ensure high tax morale and trust in society and towards institutions, and to decrease the state regulatory burden.

scholarly journals Informal Economy Enabling Tax Evasion and Money Laundering in Pakistan: An Analytical Study

2020 ◽  
Vol 2 (2) ◽  
pp. 131-138
Author(s):  
Amir Khan ◽  
Naureen Akhtar ◽  
Muhammad Danyal Khan ◽  
Rao Imran Habib
Keyword(s):  
Money Laundering ◽  
Informal Sector ◽  
Informal Economy ◽  
Tax Evasion ◽  
Small Businesses ◽  
Analytical Study ◽  
Primary Objective ◽  
Depth Analysis ◽  
Operations And Maintenance ◽  
Wage Earners

Purpose: The primary objective of this article is to conduct an in-depth analysis of the informal economy in Pakistan enabling money laundering and tax evasion in Pakistan. Furthermore, it also looks into the informal economy’s implications for the economic growth of Pakistan. Finally, this article recommends potential reforms for formalization of economy of Pakistan for prevention of such crimes. Methodology: A review regarding informal economy in Pakistan enabling money laundering and tax evasion with the help of prior studies has been conducted. Findings: The formalization of the informal sector, according to this article, is important not only for raising tax revenues, but also for digital, skilled-based improvement of business activities, ramping up the operations and maintenance size of small businesses, increasing and diversifying production, and enhancing the lot of low-wage earners. Implications: Lawmakers should focus on the implications of informal financial channels like hawala and hundi, which continue to operate beneath the radar of the informal sector. In order to identify money laundering, the Pakistani government must focus on strengthening and encouraging the digitization of the economy. The digitization of the economy is critical to the formalization of Pakistan's economy.

scholarly journals Tax Morale Depreciation And Entrepreneurship Practice Outside The Formal Economy Framework: which relation?: Exploratory Study In Sidi-AMMAR Algeria

2017 ◽  
Vol 1 (1) ◽  
Author(s):  
Abderrahime Abdellaoui ◽  
Tarek DJEDDI
Keyword(s):  
Public Sector ◽  
Informal Economy ◽  
Informal Institutions ◽  
Added Value ◽  
Entrepreneurial Activity ◽  
Formal Institutions ◽  
Tax Morale ◽  
Formal Economy ◽  
The Asymmetry ◽  
Entrepreneurial Activities

This paper aims to explore the nature of the relationship between the tax morale of Algerian entrepreneurs and their practice of entrepreneurship outside the framework of the formal economy. Given the difficulty of identifying the community of the study accurately and the absence of its database, the researchers relied on non-random sampling - the purposive sample- because they allow the selection of sample members to serve the purposes of the research. Thus, face-to-face interviews were conducted with 22 micro-enterprise owners in Sidi Ameur city in the Wilaya of M'Sila. The study concluded that the asymmetry between formal institutions (the codified laws and regulations) and informal institutions (Community norms, values) in Algeria has caused a decline in the tax morale of entrepreneurs. This contradiction is due to the increase of corruption in the public sector coincided with the bureaucratic weight, as well as deterioration in the risk of detection and punishment as a result of the corruption of public sector employees. The added value of this research paper is mainly to highlight the importance of analysis based on institutional theory in explaining the phenomenon of the informal economy, in particular the clarification of the inverse relationship between tax morals and the volume of entrepreneurial activity practiced outside the framework of the formal economy. It has also contributed to providing a modern vision based on analysis of the phenomenon at several levels, rather than relying on traditional bilateral analysis (a formal economy and an informal economy). As for the recommendations, the study has produced a number of recommendations aimed at reducing the asymmetry between the formal institutions and the informal institutions, which will enhance the tax morale, which in turn will contribute to the integration of entrepreneurial activities outside the framework of the formal economy.

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