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In countries with large informal sectors, business activities go unrecorded, taxes are not paid, opportunities for corruption are rampant, and many citizens are not able to participate in public policymaking. Informality is a symptom of underlying institutional problems. To harness the wealth of the informal sector and merge it with the formal economy, governments must offer incentives that encourage entrepreneurs to formalize, such as a simplified business registration process.
CIPE and its partners have developed key recommendations that can help bring entrepreneurs into the formal economy. One of the most important factors is private property rights – in many developing countries, there is a gap between what is ‘on the books’ and what happens in real life. To effectively reduce informality, governments must ensure that property rights are clearly defined, strongly enforced, and accessible to all citizens. |
