Informal Sector Entrepreneurship

What is it about?

This paper provides the background paper for the OECD/European Commission policy brief on informal entrepreneurship which provides an overview of the main issues and policies on this subject. In this paper, informal entrepreneurs are defined as those starting a business or are the owner/manager of a business who engage in monetary transactions not declared to the state for tax, benefit and/or labour law purposes when they should be declared but which are legal in all other respects.

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Why is it important?

The debate is not so much over whether to use direct or indirect controls. Both are required. Rather, the major discussion concerns which specific policy measures are most effective and what is the most effective way of putting these policy measures together in various combinations and sequences to elicit formalisation. The ‘responsive regulation’ approach and ‘slippery slope’ framework provide two options. Which policy measures are most effective and which sequences and combinations are most effective now needs evaluating. What is certain, however, is that there needs to be a move away from deterring informal entrepreneurship and towards the use of incentives and indirect controls if a formalisation of informal entrepreneurship is to occur. The European platform for tackling undeclared work now needs to develop and share best practice and mutual learning between countries on the most effective ways of achieving this.

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