Informality is a widespread and persistent phenomenon that affects how fast economies can grow, develop, and provide decent economic opportunities for their populations. It can arise for a variety reasons and can span across borders and influence a wide range of situations. The COVID-19 pandemic has helped to uncover the vulnerabilities of the informal workforce.

This book takes a fresh look at shadow economies around the world and their overall impact on the macroeconomy. It compiles recent research by IMF staff and academics and aims to shed new light on the topic. The contributions look at the evolution of the informal economy over time, analyze its drivers and economic consequences, and discuss possible policy responses. The book covers interactions between the informal economy, labor and product markets, gender equality, fiscal institutions and outcomes, social protection, and financial inclusion.

There is no one solution to this issue, but the findings presented in the book provide some guidance for policy development. The following areas will affect the development of polices to combat the causes of informality: access to and quality of education; tax system design; promoting access to formal financial services and measures to increase financial inclusion; and supporting polices that increase incentives and eliminate excessive regulations that act as impediment to entering into formal systems.

  

"The informal economy dominates employment and economic activity in many developing countries yet is often seen as a problem rather than a symptom of broader economic, social and institutional factors. This collection of research takes an in-depth look into understanding the causes and effects of informality and provides an inclusive framework for integration into the formal sector over time without compromising development objectives."

MASOOD AHMED – President, Center for Global Development

"Either we use the Covid-19 crisis to tackle informality head on or developing countries will face substantial social and economic turmoil in the years ahead. A window of opportunity has opened up to rethink labor markets, taxation, social protection, education and productivity to reduce informality. This pivotal book arrives right in time, with key insights for both policymakers and researchers on how to deal with these important issues."

ALEJANDRO IZQUIERDO – Deputy Director, Research Department, Inter-American Development Bank