Explaining informal entrepreneurship in Croatia: a social actor approach

In recent years, a social actor approach has emerged to explain informal sector entrepreneurship. Grounded in institutional theory, this asserts that formal institutional failures lead entrepreneurs to view participation in the informal sector as acceptable, which results in the prevalence of informal entrepreneurship. The aim of this paper is to evaluate this social actor approach. Reporting the results of 521 face-to-face interviews with a nationally representative sample of entrepreneurs in Croatia, this finds a significant association between entrepreneurs participation in the informal economy and the non-alignment of their views with the formal rules, and that the formal institutional failings significantly associated with the acceptability of informal entrepreneurship include their perception of poor quality public services, a lack of tax fairness, corruption and political instability. The implications for theory and policy are then discussed.