Tackling entrepreneurship in the informal economy: evaluating the policy options

Abstract

PurposeAlthough there is emerging an understanding that many entrepreneurs conduct some or all of their transactions off‐the‐books, there has so far been little attempt to consider what can and should be done about entrepreneurship in the informal economy. The purpose of this paper is to bridge this gap.Design/methodology/approachFollowing a review of what is known about the prevalence and nature of informal entrepreneurship, this paper evaluates what can and should be done about informal entrepreneurs by analyzing the various policy options and their implications.FindingsEvaluating the possible policy approaches of doing nothing, eradication, de‐regulation and facilitating formalisation, the finding is that doing nothing leaves intact the existing negative impacts on formal and informal businesses, customers and governments, whilst eradicating informal entrepreneurship results in governments stamping out precisely the entrepreneurship and enterprise culture that they wish to nurture, and de‐regulation results in a levelling down rather than up of working conditions. Only facilitating the formalisation of informal entrepreneurship is found to be a viable policy approach. How this might be achieved is then considered.Research limitations/implicationsMore research is required on the hurdles informal entrepreneurs witness when seeking to legitimize their business ventures in different populations before it can be known whether specific policy measures to facilitate formalisation are appropriate.Practical implicationsThis paper evaluates various public policy options for tackling informal entrepreneurship and their impacts.Originality/valueThis is one of the first evaluations of the policy options available for tackling informal entrepreneurship.