Tackling the informal economy in Southeast Europe: an institutional approach

Abstract

Analysing a 2013 survey of the informal economy in six Southeast European nations, this paper reveals how such tax non-compliance arises when the codified laws and regulations of a society’s formal institutions are not aligned with the norms, values and beliefs of citizens (its informal institutions). Tackling the informal economy is therefore shown to require a re-aligning of a society’s formal and informal institutions. This necessitates not only changing citizens’ norms, values and beliefs using, for example, tax education campaigns, but also changing the formal institutions to improve trust in government. The wider theoretical and policy implications are then discussed.