What is it about?

The aim of this paper is to evaluate the effectiveness of two contrasting policy approaches in tackling informal sector entrepreneurship. The dominant deterrence approach theorizes entrepreneurs as rational economic actors who operate in the informal sector when the benefits of doing so outweigh the costs. The resultant policy focus is upon deterring participation by increasing the costs of operating in the informal sector through increased penalties and probability of being caught. Recently, a more preventative approach has emerged theorizing entrepreneurs as social actors operating in the informal sector when there is a lack of vertical trust (in government) and horizontal trust (in others). The consequent policy focus is upon improving entrepreneurs’ vertical trust (in the state) and horizontal trust (in each other).

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Why is it important?

To evaluate these approaches, evidence is reported from a 2019 Eurobarometer survey in six East-Central European countries (Czechia, Estonia, Latvia, Lithuania, Poland and Slovakia). The finding is that participation in informal entrepreneurship is not significantly associated with the deterrent measures of raising the penalties and probability of being caught but is significantly associated with the preventative measures of improving vertical and horizontal trust. The implications for theory and policy are discussed.


Reveals the need to shift from deterring entrepreneurs from operating in the informal economy and towards building trust in government and their peers to prevent such informality.

Professor Colin C Williams
University of Sheffield

Read the Original

This page is a summary of: TACKLING INFORMAL ENTREPRENEURSHIP IN EAST-CENTRAL EUROPE: FROM A DETERRENCE TO PREVENTATIVE APPROACH, Journal of Developmental Entrepreneurship, December 2020, World Scientific Pub Co Pte Lt, DOI: 10.1142/s1084946720500247.
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