Edited by Francesco Forte, Ram Mudambi and Pietro Maria Navarra
Chapter 21: Alternative views on the origins and impact of the informal economy
By the informal sector is meant a number of segments of the economy that either are not interested in the actual amount of protection provided by the State, or, and more frequently, are not willing to pay for its costs. Informality is a big challenge for the State, imperiling its raison d'Ítre, if not its sheer existence. Informality presents different aspects of salience for analysts and policy-makers. Some focus on the distorting impact on competition originated by the informal/non tax-paying firms. Other analysts see the most salient aspect in the poverty associated with the permanence of workers in the informal sector. Policy-makers consider that evasion of taxes and regulations is the most worrisome aspect of informality. Others point to workers denied their rights to security, and to female workers denied of their right to social advancement by their - forced, or free-choice - quitting of secure jobs to attend to their children. How can the State allow that its citizens enjoy completely different levels of protection? Some citizens have full protection and some have (almost) none. The response can generate conflict if the State tries to assert its authority by eliminating the informal sector through coercion and repression. An alternative solution is accommodation. Here, the State recognizes the (temporary) benefits deriving from the informal economy, or its necessity, and provides a minimum level of protection that justifies its existence and satisfies the demands of the informal sector.
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