Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

This paper reviews the literature on taxation of the informal economy, taking stock of key debates

and drawing attention to recent innovations. Conventionally, the debate on whether to tax has frequently focused

on the limited revenue potential, high cost of collection, and potentially adverse impact on small firms. Recent

arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic

growth, broader tax compliance, and governance. More research is needed, we argue, into the relevant costs and

benefits for all, including quasi-voluntary compliance, political and administrative incentives for reform, and

citizen-state bargaining over taxation.