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.

scholarly journals Evaluating competing public policy approaches towards the informal economy

2016 ◽  
Vol 29 (4) ◽  
pp. 365-380 ◽  
Author(s):  
Colin C Williams ◽  
Ioana Alexandra Horodnic ◽  
Lynda Burkinshaw
Keyword(s):  
Informal Economy ◽  
Design Methodology ◽  
Social Actor ◽  
Content Type ◽  
Face To Face ◽  
Economic Actor ◽  
The Uk ◽  
Practical Implications ◽  
Do So

Purpose – Conventionally, participation in the informal economy has been explained by viewing citizens as rational economic actors participating when the pay-off is greater than the expected cost of being caught and punished, and thus tackled by raising the sanctions and risks of detection. Given that many citizens do not engage even when the benefits outweigh the costs, a new social actor approach has begun to emerge which explains the informal economy as arising when tax morality is low and seeks to foster commitment to compliance. The purpose of this paper is to provide an evidence-based evaluation of these competing policy approaches. Design/methodology/approach – To do so, the results are reported of 1,306 face-to-face interviews undertaken during 2013 in the UK. Findings – The finding is that raising the sanctions and risks of detection has no significant impact on the likelihood of participation in the informal sector. However, participation in the informal economy is significantly associated with tax morality. Indeed, the only time that increasing the sanctions and risks of detection reduces the level of participation in the informal economy is amongst citizens with very low tax morality. Practical implications – Rather than continue with the current rational economic actor approach of increasing the penalties and risks of detection, this case study of the UK reveals that a new policy approach is required that seeks to improve tax morality by introducing measures to reduce the acceptability of participating in the informal economy. Whether this is more widely applicable now needs to be tested, given the dominance throughout the world of this punitive rational economic actor approach. Originality/value – This paper provides evidence supporting a new social actor approach towards explaining and tackling participation in the informal economy.

scholarly journals Explaining participation in undeclared work in France: lessons for policy evaluation

2017 ◽  
Vol 37 (3/4) ◽  
pp. 203-217 ◽  
Author(s):  
Jan Windebank ◽  
Ioana Alexandra Horodnic
Keyword(s):  
Policy Framework ◽  
Small Scale ◽  
French Population ◽  
The European Union ◽  
Social Actor ◽  
Tax Morale ◽  
Content Type ◽  
Economic Actor ◽  
Undeclared Work

Purpose France is a model of best practice in the European Union as regards policy to combat undeclared work. The purpose of this paper is to take the country as a case study to evaluate the competing explanations of why people engage in undeclared work which underpin such policy, namely, the dominant rational-economic-actor approach and the more recent social-actor approach. Design/methodology/approach To evaluate these approaches, the results of 1,027 interviews undertaken in 2013 with a representative sample of the French population are analysed. Findings The finding is that higher perceived penalties and risks of detection have no significant impact on the likelihood of conducting undeclared work in France. In contrast, the level of tax morale has a significant impact on engagement in the activity: the higher the tax morale, the lower is the likelihood of participation in the undeclared economy. Higher penalties and risks of detection only decrease the likelihood of participation in undeclared work amongst the small minority of the French population with very low tax morale. Practical implications Current policy in France to counter undeclared work is informed principally by the rational-economic-actor approach based on a highly developed infrastructure for detection and significant penalties alongside incentives to declare small-scale own-account work. The present analysis suggests that this approach needs to be supplemented with measures to improve citizens’ commitment to compliance by enhancing tax morale. Originality/value This case study of a country with a well-developed policy framework to combat undeclared work provides evidence to support the social-actor approach for informing policy change.

scholarly journals Evaluating the individual- and country-level variations in tax morale

2017 ◽  
Vol 44 (5) ◽  
pp. 816-832 ◽  
Author(s):  
Colin C. Williams ◽  
Besnik Krasniqi
Keyword(s):  
Tax Compliance ◽  
State Intervention ◽  
Developed Countries ◽  
Social Actor ◽  
Actor Model ◽  
Tax Morale ◽  
Content Type ◽  
Country Level ◽  
The One ◽  
The Individual

Purpose Recently, a small but burgeoning literature has argued that tax non-compliance cannot be fully explained using the conventional rational economic actor approach which views non-compliance as occurring when the pay-off is greater than the expected cost of being caught and punished. Instead, a social actor approach has emerged which views tax non-compliance as higher when “tax morale”, defined as the intrinsic motivation to pay taxes, is low. To advance this social actor model, the purpose of this paper is to evaluate the individual and national heterogeneity in tax morale, which is crucial if tax compliance is to be improved. Design/methodology/approach To do this, the authors report data from the 2010 Life in Transition Survey on tax morale in 35 Eurasian countries. Findings Logit econometric analysis reveals, on the one hand, that there is higher tax morale among middle-aged, married, homeowners with children, with a university degree and employed, and on the other hand, that there is higher tax morale in more developed countries with stronger legal systems and less corruption, and higher levels of state intervention in the form of both taxation and expenditure. Research limitations/implications Rather than continue with the rational actor approach, this paper reveals that how an emergent social actor approach can help to more fully explain tax non-compliance and results in a different policy approach focused upon changing country-level economic and social conditions associated with low tax morale and thus non-compliance. Practical implications These results display the specific populations with low tax morale which need targeting when seeking to tackle tax non-compliance. Originality/value This paper provides a new way of explaining and tackling tax non-compliance in Eurasian countries.

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 INFORMAL ENTREPRENEURSHIP: SOME LESSONS FROM FYR MACEDONIA

2018 ◽  
Vol 23 (03) ◽  
pp. 1850019 ◽  
Author(s):  
COLIN C. WILLIAMS ◽  
SLAVKO BEZEREDI
Keyword(s):  
Informal Sector ◽  
Informal Economy ◽  
Poor Quality ◽  
Policy Implications ◽  
Social Actor ◽  
Face To Face ◽  
Values And Beliefs ◽  
Informal Entrepreneurship ◽  
Nationally Representative ◽  
Formal Rules

In recent years, a new institutionalist theory has emerged to explain the prevalence of informal sector entrepreneurship. This argues that formal institutional failures lead to the emergence of an asymmetry between the formal rules (laws and regulations) and the norms, values and beliefs of entrepreneurs regarding the acceptability of participating in the informal sector, which in turn leads to the prevalence of informal entrepreneurship. The aim of this paper is to evaluate this social actor approach by reporting evidence from 453 face-to-face interviews with a nationally representative sample of entrepreneurs in FYR Macedonia. This reveals not only a significant association between participation in the informal economy and the non-alignment of entrepreneurs’ views with the formal rules, but specific formal institutional failings that are significantly associated with the acceptability of informal entrepreneurship, namely poor quality public services, a lack of tax fairness, corruption and instability in the formal institutions. The theoretical and policy implications are then discussed.

scholarly journals Explaining the informal economy in Western Europe: beyond a rational economic actor perspective

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Colin Williams ◽  
Gamze Oz-Yalaman
Keyword(s):  
Informal Economy ◽  
Western Europe ◽  
Alternative Theory ◽  
Probit Regression ◽  
Content Type ◽  
Social Actors ◽  
The United Kingdom ◽  
Economic Actor ◽  
Expected Benefits ◽  
Practical Implications

PurposeThe 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.Design/methodology/approachTo do so, data are reported from special Eurobarometer surveys conducted in 2007, 2013 and 2019 in eight West European countries (Austria, Belgium, France, Germany, Ireland, Luxembourg, the Netherlands and the United Kingdom).FindingsUsing 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 there was 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 implicationsThe 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/valueEvidence 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.

Exploring decision-making biases among Iranian entrepreneurs: some novel insights

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Pouria Nouri
Keyword(s):  
Decision Making ◽  
Small Businesses ◽  
Illusion Of Control ◽  
Escalation Of Commitment ◽  
Content Type ◽  
Face To Face ◽  
Control Factors ◽  
Qualitative Thematic Analysis ◽  
The Law ◽  
Decision Making Biases

Purpose Decision-making biases play decisive roles not only in entrepreneurs’ decisions but also in the fate of entrepreneurial businesses. While the extant literature in this regard is relatively rich, it has predominantly focused on certain biases like overconfidence and overoptimism at the expense of other possibly influential biases, which could influence entrepreneurial decisions. Thus, to address this serious research gap, this paper aims to explore four of the less-researched biases of escalation of commitment, the illusion of control, confirmation and the belief in the law of small numbers in entrepreneurial decisions. Design/methodology/approach By taking a qualitative approach, the data for this study were collected through face-to-face interviews with 19 Iranian habitual (experienced) entrepreneurs running small businesses and analyzed by a qualitative thematic analysis. Findings According to the results, the environmental uncertainty, the reluctance to lose face and the experiences of previous failures contributed to the escalation of commitment, while disregard for external factors beyond one’s control caused the illusion of control, factors like prior successful businesses in the same sector, looking for resorts to manage uncertainty, along with the decision to exploit opportunities resulted in the confirmation bias, while the expenses of conducting sweeping pilot tests in the market and the reluctance to reveal a business secret to the competitors were the main contributors of the belief in the law of small numbers. Originality/value This study is a pioneer in scrutinizing four less-researched but important biases in entrepreneurs and, thus extending the line of research in this regard.

scholarly journals Self-employment, the informal economy and the marginalisation thesis

2015 ◽  
Vol 21 (2) ◽  
pp. 224-242 ◽  
Author(s):  
Colin C Williams ◽  
Ioana Alexandra Horodnic
Keyword(s):  
Informal Economy ◽  
Design Methodology ◽  
The Self ◽  
Content Type ◽  
Face To Face ◽  
Self Employment ◽  
Extensive Evaluation ◽  
Urban Rural ◽  
Nuanced Understanding ◽  
Do So

Purpose – The purpose of this paper is to evaluate which groups of the self-employed engage in the informal economy. Until now, self-employed people participating in the informal economy have been predominantly viewed as marginalised populations such as those on a lower income and living in deprived regions (i.e. the “marginalisation thesis”). However, an alternative emergent “reinforcement thesis” conversely views the marginalised self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives. Design/methodology/approach – To do this, the author report a 2013 survey conducted across 28 countries involving 1,969 face-to-face interviews with the self-employed about their participation in the informal economy. Findings – Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis applies when examining characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the informal economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban-rural divide and educational level are analysed, no evidence is found to support either the marginalisation or reinforcement thesis. Research limitations/implications – The outcome is a call for a more nuanced understanding of the marginalisation thesis that the self-employed participating in the informal economy are largely marginalised populations. Originality/value – This is the first extensive evaluation of which self-employed groups participate in the informal economy.

scholarly journals Facilitating the formalisation of entrepreneurs in the informal economy

2014 ◽  
Vol 3 (1) ◽  
pp. 33-48 ◽  
Author(s):  
Colin Williams ◽  
Sara J. Nadin
Keyword(s):  
Public Policy ◽  
Informal Economy ◽  
Design Methodology ◽  
Content Type ◽  
Empirical Survey ◽  
Different Types ◽  
Policy Measures ◽  
Informal Entrepreneurship

Purpose – Although it has been recognised that many entrepreneurs operate in the informal economy, little is so far known about their reasons for doing so. The purpose of this paper is to begin to unravel entrepreneurs’ rationales for trading in the informal economy in order to consider what policy measures need to be adopted to facilitate their formalisation. Design/methodology/approach – To do this, the results of an empirical survey are reported conducted in Ukraine during 2006/2007 with 331 individuals who had started-up or owned/managed an enterprise. Findings – Revealing that the rationales for entrepreneurs operating in the informal economy markedly differ according to whether they are wholly or partially informal entrepreneurs operating temporarily or permanently in the informal economy, the result is a call for a move beyond a “one-size-fits-all” policy approach and towards a variegated public policy approach whereby policy measures are tailored to tackling the different types of informal entrepreneurship, each of which operate informally for varying reasons. Research limitations/implications – No evidence yet exists of whether the rationales for engaging in each type of informal entrepreneurship, and the consequent policy measures that need to be used to formalise each type, are more widely valid. Further research to evaluate this is required. Originality/value – This is the first paper to start to move beyond a “one size fits all” policy approach when considering how to facilitate the formalisation of entrepreneurs in the informal economy.

scholarly journals Explaining different types of undeclared work: lessons from a 2019 Eurobarometer survey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Colin Williams ◽  
Gamze Oz-Yalaman
Keyword(s):  
Political Economy ◽  
The European Union ◽  
Social Actor ◽  
Content Type ◽  
Social Actors ◽  
Self Employment ◽  
The United Kingdom ◽  
Economic Actor ◽  
Undeclared Work ◽  
Different Types

PurposeUntil now, most scholars have used one of four competing theories to explain undeclared work. Political economy theories explain undeclared work as resulting from the exclusion of workers from formal work and welfare, neo-liberal theories explain such work as a voluntarily chosen rational economic decision and neo-institutionalist and post-structuralist theories explain those engaging as social actors who disagree with the formal rules or seek to help others out respectively. Recognising that each theory focuses upon different employment relationships, this paper evaluates the proposition that these different theories are more explanations of different types of undeclared work.Design/methodology/approachTo evaluate this, data reported is collected in 2019 across 28 European countries (the 27 member states of the European Union and the United Kingdom) in special Eurobarometer survey 92.1 involving 27,565 interviews.FindingsOf the 3.6% of citizens participating in undeclared work, 10% engage in undeclared waged employment, 42% in undeclared self-employment and 48% in undeclared paid favours. Reporting their rationales, 7% state purely political economy exclusion-driven reasons, 19% solely neo-liberal rational economic actor reasons, 20% purely social actor reasons and 54% mixed motives. A logistic regression analysis finds those engaging in undeclared waged employment significantly more likely to state purely exclusion-driven rationales, those engaging in undeclared self-employment significantly more likely to state neo-liberal rational economic actor and neo-institutionalist social actor rationales and those engaging in undeclared paid favours post-structuralist social actor motives.Practical implicationsThis finding suggests that the policy initiatives required to tackle undeclared work will vary according to the type of undeclared work addressed. These are outlined.Originality/valueEvidence is provided that a different weighting needs to be given to different theories when explaining each type of undeclared work.

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