Strategies of the state towards the informal economy

Around the world developed and developing economies alike are struggling with the persisting nature of the informal economy. The policy advice given to politicians by development economists today is rather generic with no regard to country-specific factors. This research develops a policy advice framework for governments to improve the relevance of policy actions towards the Informal Economy. The basic paradigm is that the informal economy is not to be regarded as a nuisance, a growth break, or just as a social safety net. Rather it is a telling symptom of incomprehensive economic policy. A comprehensive economic growth framework must put the informal economy and equal level to the formal economy. This study has been written with policy developers, development agencies and practioners in mind. A comprehensive set of policy levers is theorized and subsequently tested empirically on a global set of developing and developed nations. The thesis makes an important contribution to both theory and practice in that it shows that the informal economy is a much more complex phenomenon than it could ever be dealt with through simplistic tax enforcement and simplification of regulation levers. More levers are available and their selection should be depended on country-specific factors and conditions, which include economic but also sociological and administrative ones. Policy advisers and development agencies will find this thesis as helpful in evaluating economic policy on the sophistication of its response towards the informal economy. It will allow them then to make specific recommendations on how to improve such policy to enable economic growth and transition the informal to the formal economy. Researchers will find the systematic and cross-disciplinary socioeconomic view as a refreshing paradigm shift and enabling to open new theoretical and applied research venues. The thesis has been written as part of a dissertation at the Goethe University's Chair of Economic Development and Integration under the supervision of Prof. Dr. Rainer Klump. The work of the chair is known for its theoretical nature as well as its applied nature through the work with several international development organizations such as the GTZ. The hor Dr. Tengüz brings many years of international government advisory experience to bear in this applied research.