Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

Abstract

This paper reviews the literature on taxation of the informal economy, taking stock of key debates and drawing attention to recent innovations. Conventionally, the debate on whether to tax has frequently focused on the limited revenue potential, high cost of collection, and potentially adverse impact on small firms. Recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth, broader tax compliance, and governance. More research is needed, we argue, into the relevant costs and benefits for all, including quasi-voluntary compliance, political and administrative incentives for reform, and citizen-state bargaining over taxation.     

The evolution of business – state interaction in Russia: From state capture to business capture?

This article discusses two basic strategies of Russian companies—isolation from, and close cooperation with the state. The author analyses several ways in which companies realise these strategies, drawing analogies with the ‘exit’ and ‘voice’ strategies suggested by A. Hirschman. It is shown that under the conditions of a weak state these strategies lead either to an expansion of the shadow economy or to ‘state capture’. Both the privatisation of the state and the lack of its privatisation result in budget crises as well as drastic social and political shocks, leading to calls for a ‘strong hand’ in the business community itself. However, as there is little political competition and the mechanisms of democratic control are weak, state consolidation takes place as a bureaucratic consolidation accompanied by new opportunities for informal ‘business capture’ by the authorities. Nevertheless, the high degree of openness of the economy and the remaining heterogeneity of political actors provide business with a wide range of possible strategies of interaction with the state. This article explores how these strategies are becoming more formal and public compared to the 1990s. Strategies of isolation from the state now take place as legal strategies of internationalisation. Cooperation strategies, on the other hand, currently seem to be more efficient when switching from the traditional lobbying of private interests to more rational and collective actions aimed at providing the necessary conditions for sustainable economic development.     

Globalisation masculinities,empire building and forced prostitution: a critical analysis of the gendered impact of the neoliberal economic agenda in post-invasion/occupation Iraq

Adopting a transnational feminist lens and using a political economy approach, this article addresses both the direct and indirect consequences of the 2003 war in Iraq, specifically the impact on civilian women. Pre-war security and gender relations in Iraq will be compared with the situation post-invasion/occupation. The article examines the globalised processes of capitalism, neoliberalism and neo-colonialism and their impact on the political, social and economic infrastructure in Iraq. Particular attention will be paid to illicit and informal economies: coping, combat and criminal. The 2003 Iraq war was fought using masculinities of empire, post-colonialism and neoliberalism. Using the example of forced prostitution, the article will argue that these globalisation masculinities – specifically the privatisation agenda of the West and its illegal economic occupation – have resulted in women either being forced into the illicit (coping) economy as a means of survival, or trafficked for sexual slavery by profit-seeking criminal networks who exploit the informal economy in a post-invasion/occupation Iraq.     

Informality and Collective Organising: identities,alliances and transnational activism in Africa

This paper is a conceptual exploration of the dimensions of the contemporary politics of informal economies, from the vantage point of collective organising by ‘informal workers’. It inquires into the formation of the political subjectivities and collective identities of informal actors. The importance of the relations between their organisations and other organised actors is illustrated with a discussion of emerging alliances with trade unions. The transnational scales of collective organising by ‘informal workers’ are addressed. The paper suggests an analytical approach that takes account of the diversity of organised actors, of a variety of governing powers and of the various spatial scales of social struggle involved in the politics of informal livelihoods today. The reflections are informed by the considerable social and economic differentiation contained in informal economies and emphasise the importance of the great diversity of actors, positions, agendas and identities for understanding the complex and contingent politics of informality. Empirical illustrations are drawn from the African continent, but the discussions in the paper address wider trends and theoretical debates of relevance for other developing regions.     

Violence and Urban Order in Nairobi, Kenya and Lagos, Nigeria

This article examines the interaction between politics and informal institutions of order in two of Africa’s most violent and crime-ridden cities, Nairobi, Kenya and Lagos, Nigeria. In both cities, governments have failed to provide basic public services and security to citizens, especially to those who reside in informal settlements or slums. A variety of informal institutions, including ethnic militia and block-level vigilante groups, fulfill security and enforcement roles in these relatively ungoverned urban spaces. This article examines the differences in the character and organization of these “specialists in violence,” and it argues that these differences are often integrally linked to the political strategies and aims of elites. The article makes two primary contributions to existing understandings of informal order in violent cities in the developing world. First, I find that organizations seemingly organically linked to local communities, such as ethnic militia, are strongly influenced by national-level political struggles. Violent organizations can gain a foothold and degree of legitimacy by appealing to traditional loyalties, including ethnicity, but organizations with these advantages are also attractive targets for cooptation by political actors. Secondly, both direct state repression and electoral use of militia lead to more predatory forms of interaction between these groups and local communities.     

Before and after Dayton: The UN and NATO in the former Yugoslavia

Business managers name Africa's political instability as a key obstacle to economic development, but many companies continue to invest in Africa. The article explains this apparent contradiction by looking at the case of Shell in Nigeria. Nigeria experiences serious political instability, yet Shell is expanding its investment in the country. This article deals with sources of firm-specific political instability that have affected Shell in Nigeria in the past and attempts to explain why a specific corporation such as Shell may want to make investments in the country despite political instability. The examination of three different angles of Shell's activity, which forms the core of this paper, reveals that political instability does not hinder Shell from operating in Nigeria. Firstly, the international perspective illuminates in what way Nigeria may be more attractive to Shell than other countries. Profits in Nigeria appear to be higher than elsewhere, while Shell occupies a dominant market position unrivalled in most other countries. Secondly, the structural perspective illuminates the interconnectedness of Shell with state structures in Nigeria that may tie the company to Nigeria. Shell established a first mover advantage in the 1950s, since Nigeria was a British colony until 1960 and British oil companies were given preferential treatment. After independence, Shell managed to penetrate state structures which helped to hedge political risk in the country. Thirdly, the strategic perspective explores how Shell's strategic approaches may make political instability less significant to Shell. This article concludes that Shell has adopted to political instability. The conclusion that political instability can be conducive to business is significant since one expects political instability to be inherently harmful to business.     

Work Contracts and Earnings Inequality: The Case of Chile

Great social inequality has been one of the worrisome features of economic development in Latin America. This study focuses on Chile, one of Latin America's fastest growing economies with one of the highest levels of income inequality during the 1990s. Using micro-level data from the 1994 and 2000 Encuestas de Caracterización Socio-Económica, this article examines the role of work contracts in explaining male and female earnings and earnings inequality among wage and salary workers over the second half of the 1990s. The analysis distinguishes between wage and salary work without a work contract – referred to as ‘informal’ work, and wage and salary work with a work contract. Within the latter group, the study further differentiates by the type of work contract held, such as permanent and a variety of contingent work contracts. The findings reveal that the majority of employees in informal and contingent wage and salary work arrangements earned significantly less than their permanent counterparts. Additionally, informal and contingent wage and salary work arrangements accounted for a small, although increasing, fraction of male and female earnings inequality from 1994 to 2000. Finally, the proliferation of seasonal, fixed-term, and informal wage and salary work arrangements has been one of the few economically significant factors in explaining changes in male and female earnings inequality over the second half of the 1990s.     

Economic Transformation Outside the Law: Corruption,Trust in Public Institutions and the Informal Economy in Transition Countries of Central and Eastern Europe

This article considers the role of the informal economy in Central and Eastern European post-communist countries. The informal economy is defined as the ‘black’ economy, which is monetised but outside the law (often illegal) on the one hand and the ‘household’ and ‘social’ economies which are non-monetised and non-legal in the sense that they are outside of legislation. The article shows that in some countries the black economy is very important for supporting household incomes (Serbia and Croatia) and in other countries the household or social economies are predominant (especially Romania and Ukraine). In a third group of countries the formal economy predominates over other economies (especially the Czech Republic and Hungary). The article goes on to look at what kinds of people participate in these different economies and concludes that whilst the household and social economies are a social safety net for the poor, the elderly and those in rural areas, the black economy is more likely to be an option for those who are already better off to improve their incomes. The article considers the implications of this for attitudes to the legitimacy of the public realm and finds that greater participation in the informal economy is associated with both loss of trust in public institutions and increased perception of corruption. Therefore it is hypothesised that economic activities that take place ‘outside the law’ could lead to a decline in confidence in the state, although there are important variations between countries.     

Opening the black box: an analysis of the Russian economy

The article develops a simple framework for a discussion of the structure of property rights in the Russian economy. The framework suggests how barter and enterprise restructuring can be evaluated simultaneously with political motivation. Using the notion of politicians with inefficient control over the private sector, it also assesses the recent virtual economy hypothesis. It emphasizes the importance of incentives that were carried over from the Soviet era, which, it is suggested, must be duly considered while analyzing parametric changes in the Russian economy. This point is supported with the help of two examples at the end of the paper.     

Risk,Reflexivity and Sub-politics: Environmental Politics in Hong Kong

Increasing attention has been drawn to the risk posed by air pollution, a risk that has wide-ranging effects (on the environment, health, the economy, culture, urban design and politics). New environmental movements and political agendas have emerged in the past 10 years. A growing number of social groups have been formed to express their concerns and challenge established laws and rules. This paper will borrow Ulrich Beck's concepts of risk, reflexivity and sub-politics to analyse the new social movement that addresses air quality in Hong Kong. While previous environmental problems were considered manageable, air pollution is a risk that seems to defy solution. As a result of the institutional failure to deal with this risk, there has been a new alignment of interests and the emergence of a new form of politics—a sub-politics that leads to a sharing of power between established and informal politics, and the government and society. Although established political institutions have been receptive, altering the rules and increasing public participation, the extent of sub-politicization is still limited. This is due, in part, to the overall absence of reflexive self-regulation among individuals in the society, which might lead to a state of ‘disorganized irresponsibility’.     

A Legitimate Paradox: Neo-liberal Reform and the Return of the State in Korea

This article examines the neo-liberal reforms that the Kim government implemented in post-crisis Korea. It argues that by embracing the reforms, the state, paradoxically, re-legitimised itself in the national political economy. The process of enacting the reforms completed the power shift from a collusive state-chaebol alliance towards a new alliance based on a more populist social contract - but one that nonetheless generally conformed to the tenets of neo-liberalism. Kim and his closest associates identified the malpractices of the chaebols as the main cause of the crisis, so reforming the chaebols would be the key to economic recovery. Combining populism and neo-liberalism, they drew on support from both domestic and international sources to rein in, rather than nurture, the chaebols.     

Mugabe at war: The political economy of conflict in Zimbabwe

This paper employs a 'political economy of conflict' approach to explore the recent deterioration in the governance of Zimbabwe. It argues that this analytical approach, which has been applied by scholars such as William Reno to highly dysfunctional and/or collapsed states like Liberia and Sierra Leone, is appropriate for understanding the current actions of the Zimbabwean government as well, and especially their relation to the military's unpopular intervention in the recent conflict in the Democratic Republic of the Congo. While Zimbabwe's current crisis has been aptly described by various scholars as a failure of leadership, this paper argues that such failures of national governments in Africa need to be understood within the broader context of international political economy. Zimbabwe's lapses in governance extend beyond the state and the national border to features that have non-state and informal as well as international and transnational dimensions.     

Trust in public institutions in Russia: The lowest in the world

The article's topic is the attitudes of the Russians toward their social institutions. As it will be shown, Russia is a country, much more than any other, that mistrusts its social institutions, political institutions in particular. There is no one institution that can garner more than 40 to 50 percent of the nation's trust. Indeed, in terms of their lack of confidence in social institutions, the Russians are behind not only the most advanced countries in the world, but even countries known for their unstable political systems, such as Colombia or Nigeria.     

Breaking up a partnership to build a competitive market in Denmark’s ambulance service: how can studies of contract reversals learn from the sociology of markets?

ABSTRACT

paper analyses a case of contract reversal in the market for ambulance services. The paper suggests that the sociology of markets-literature provides insights into market institutions of importance to relations between government and contractors that will benefit contracting out theory. Building on document analysis and interviews with 19 key stakeholders, it is demonstrated how a regional government in Denmark tried to wrestle the service provision from a long-time private provider and create a competitive market, only to discover that the implementation of the new contract was beset by obstacles largely stemming from informal norms in the market and attempts of the existing provider to hamper market entry for challenger firms. The result was a contract reversal: from private provision to government-provided service delivery. The paper contributes to the contracting out literature by providing a more elaborate understanding of the institutional conditions under which contract reversals can take place.     

State,Society, and Informality in Cities of the Global South

Contemporary urbanization in the Global South merits greater attention from scholars of comparative politics. Governance, associational life, and political behavior take distinctive forms in the social and institutional environments created by rapid urbanization, particularly within informal settlements and labor markets. In this special issue, we examine forms of collective action and claims-making in these spaces. We also consider how the state assesses, maps, and responds to the demands of informal sector actors. Tackling questions of citizen and state behavior in these informal urban contexts requires innovative research strategies due to data scarcity and social and institutional complexity. Contributors to this symposium offer novel strategies for addressing these challenges, including the use of informal archives, worksite-based sampling, ethnographic survey design, enforcement process-tracing, and crowd-sourced data.     

Political Economy of Modern Belarus: Going Against Mainstream?

A peculiar model of post-communist political economy has evolved in Belarus under President Aliaksandr Lukashenka. It features prioritisation of non-entrepreneurial social groups, a strong role for the state, and extensive social security provision. The model appears to be grounded on Lukashenka's understanding of his political powerbase; having no external backing for his policies, he wants to command as wide grass-roots support as possible to remain in office. By doing so, he rejects the principles of pluralist democracy and market economy, making Belarus's political economy model quite different from that envisaged in the mainstream post-communist theories of neo-liberalism and gradualism.     

Tubali's trip: Rethinking informality in the study of West African labour migrations

This article focuses on the work and travels of Tubali, a Hausa-speaking migrant from the region of Tahoua in the Republic of Niger. In a journey that lasted four years and took him across Niger, Nigeria, Cameroun, Equatorial Guinea, Gabon and the Republic of the Congo, Tubali operated in contexts usually characterised as “informal”: he travelled without documents or work permits, and was supported by institutions that elude state control and yet grant access to financial resources, travel support and employment opportunities to travellers unable or unwilling to follow official avenues. These migrants rely on the operation of relationships that, in Tubali's case, are mostly impromptu, formed on the basis of shared ethnicity, religion and region of origin. This article interprets Tubali's trip in relation to the meanings attributed to this way of working and travelling in Tahoua's society. It investigates the conceptual and political consequences of characterising these migrants' practices as “informal” and discusses analytical alternatives.     

Informal Institutions in Azerbaijan: Exploring the Intricacies of Tapsh

Research on informal aspects of the post-communist economy and political institutions has developed rapidly since the collapse of the Soviet Union. While there is no lack in research on informal practices in Russia and other Eastern European countries, comprehensive empirical investigations of informality in peripheral regions of the former Soviet Union—such as the Caucasus and Central Asia—are still rare. This article aims to fill this gap by providing an evidence-based empirical account of informal practices in post-Soviet Azerbaijan. Drawing its empirical data from a two-decade-long ethnographic participant observation carried out in various locales of Azerbaijan’s capital, Baku, this study offers nuanced insights into the hitherto unexplored informal practice of tapsh.     

Latin american municipal government:the rise of metagovernment

Metagovernment, the extra-legal and informal government that has developed in the squatter settlements and informal economic sectors of Latin American nations is rapidly becoming the most relevent form of government for many Latin Americans. The roots of this phenomenon can be found in the early history of Latin American municipal governments and the persistence of an exclusionist and elitist set of institutions and va:ues from colonial times to the present The social and economic forces contributing to the rise of metagovernment emanate from the rural regions ane the high levels of population growth in the reglor toqether with the unbalanced patterns of regional development in the region. Metagovernment is a response to the exclusionist and elitist political cutture, and :he prcduct of new social forces and groups arising in urban Latin Amerlca.     

An economic appraisal of the Egyptian revolution

Historical research, mainly focused on early-modern Europe, has suggested a positive link between taxation and democracy. This study approaches the connection in a present-day developmental context by looking at differences between taxpayers and non-taxpaying citizens in terms of political interest, a precondition for accountability demands. Using survey data from sub-Saharan Africa, a multilevel analysis shows that taxpaying increases political interest. The causal direction of this finding is confirmed through an instrumental variable analysis. The results support the existence of the mechanisms underlying the theory of taxation working as a generator of political engagement and democracy.