Journal Article

Regulatory governance and the informal economy: cross-national comparisons

Basak Kus

in Socio-Economic Review

Published on behalf of Society for the Advancement of Socio-Economics

Volume 8, issue 3, pages 487-510
Published in print July 2010 | ISSN: 1475-1461
Published online May 2010 | e-ISSN: 1475-147X | DOI: http://dx.doi.org/10.1093/ser/mwq005
Regulatory governance and the informal economy: cross-national comparisons

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This article examines the relationship between state regulation and the informal economy at the macro-level across a broad set of countries. The analysis shows (a) that countries have different types of regulatory environments—varying by the degree of state regulation of economic activity—and the degree to which the state implements and enforces the existing regulations—and (b) that this variation helps explain why some nations have more informal economic activity than others. The findings also suggest that (c) contrary to what the neoliberal orthodoxy has prescribed over the past few decades, decreasing the degree of state regulation in the economy will not necessarily formalize the economy. The degree of regulation seems to have a significant association with the size of the informal economy only in nations with effective law enforcement. Where this is not the case—as in many developing nations—deregulatory policies are likely to be counter-productive in formalizing the economy.

Keywords: informal economy; regulation; deregulation; state; cross-national; E26 informal economy; underground economy; P26 political economy; property rights

Journal Article.  8965 words.  Illustrated.

Subjects: Moral Philosophy ; Corporate Social Responsibility ; Welfare Economics ; Political Economy ; Economic Sociology

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