Entrepreneurship in the Underground Economy
Chapter 12: Moving Underground Enterprise into the Mainstream: Demand-side Initiatives
INTRODUCTION Public policy in most western economies has predominantly relied on supplyside deterrence measures to tackle the underground economy. In the last chapter, it was revealed that complementing deterrents with the provision of incentives to suppliers might encourage formalization. In this chapter, the other side of the coin is considered, namely demand-side measures to encourage customers to acquire goods and services on a legitimate rather than underground basis. To commence, therefore, this chapter recaps how public policy in western economies has predominantly adopted a supplyside deterrence approach towards the underground economy and how this has resulted in little attention being given to either demand- or supply-side incentives. Following this, a range of possible demand-side incentives is evaluated. First, targeted indirect tax measures to persuade customers of underground enterprise to use formal employment are evaluated, second, targeted direct tax measures and third and ﬁnally, voucher schemes that seek to shift demand into the formal economy. This will reveal that if the hidden enterprise culture is to be brought out of the shadows, then public policy in western economies will need to give greater attention to supplementing supply-side deterrents not only with supply-side but also demand-side incentives so as to facilitate its transfer into the legitimate realm. FROM SUPPLY- TO DEMAND-SIDE PUBLIC POLICY APPROACHES As shown in Chapter 7, western governments have focused on using deterrents to curtail those either already engaged in underground work or considering participation. Relatively under-emphasized so far in public policy are, on the one hand, incentives to...
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