Policy options for tackling the informal economy: objectives and policy measures

This chapter reviews the policy options and approaches for addressing the informal economy. This evaluates the advantages and disadvantages of five possible policy objectives , namely taking no action, informalising the formal economy, growing the informal economy, eradicating the informal economy, and formalising the informal economy. Given the widespread consensus across governments and supra-national institutions that formalising the informal economy is the way forward, the chapter then introduces the holistic integrated strategic approach increasingly being pursued where the transition to formality is facilitated using a whole government approach that achieves the inclusive structural transformation required by joining-up the fields of labour, tax and social security law, involves social partners, and using the full range of direct and indirect policy measures available to enhance the power of, and trust in, authorities. This chapter then introduces the range of direct and indirect policy tools available and how they can be combined.