What is it about?

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.To 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).

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Why is it important?

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 there was no significant impact in 2013 and 2019. However, greater vertical and horizontal trust is significantly associatedwith a lower level of participation in the informal economy in all three timeperiods

Perspectives

Reveals the changes over time in the reasons for operating in the informal economy in Western Europe

Professor Colin C Williams
University of Sheffield

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This page is a summary of: Explaining the informal economy in Western Europe: beyond a rational economic actor perspective, Journal of Economic Studies, September 2020, Emerald, DOI: 10.1108/jes-05-2020-0233.
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