Entrepreneurship and the Shadow Economy

Entrepreneurship and the Shadow Economy

Edited by Arnis Sauka, Friedrich Schneider and Colin C. Williams

The shadow economy has become the focus of policy makers around the world. This timely book explores the relationship between entrepreneurship and the shadow economy by reviewing how to measure, explain and tackle this hidden enterprise culture. The editors bring together leading authorities in the field to examine existing methods to measure the shadow economy, explore entrepreneurship and shadow economy practices in various contexts, and provide policy suggestions for decreasing the shadow economy. It concludes by encouraging further research in this ever-growing field.

Chapter 4: The participation of the self-employed in the shadow economy in the European Union

Colin C. Williams, Ioana A. Horodnic and Jan Windebank

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship


The aim of this chapter is to evaluate which groups of the self-employed engage in the shadow economy. Until now, self-employed people participating in the shadow economy have been predominantly viewed as marginalized populations such as those on a lower income and living in deprived regions (the ‘marginalization thesis’). However, an alternative emergent ‘reinforcement thesis’ conversely views these marginalized self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives. To do this, we report a 2013 survey conducted across 28 countries involving 1969 face-to-face interviews with the self-employed about their participation in the shadow economy. Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalization thesis applies when analysing characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the shadow economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban–rural divide and educational level are analysed, no evidence is found to support either the marginalization or reinforcement thesis. The outcome is a call for a more nuanced understanding of the marginalization thesis that the self-employed participating in the shadow economy are largely marginalized populations.

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