Abstract and Keywords
This chapter begins with an overview of the major approaches and potential limitations of defining the informal sector, followed by an analysis of its size, structure, and institutional context. It then considers the taxation of informal firms and notes the pervasiveness of tax evasion in the informal sector, along with state failures and informal employment, earnings differentials between formal and informal actors, and the role of rural–urban migration in the rise of informal labor force in developing countries. The chapter explores why informality is so pervasive in Africa; why informal firms are less productive than their formal counterparts; whether it is best for development to proceed in order to get informal firms to register and pay formal taxes; and how to help informal firms and those employed in the informal sector. Finally, it discusses a good approach to development that takes into account the existence of the informal sector.
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