Explaining Participation in the Informal Economy in Post-Socialist Societies: A Study of the Asymmetry between Formal and Informal Institutions in Croatia

Abstract

This paper proposes a new way of explaining the informal economy in post-socialist societies. Drawing upon evidence from 1,000 face-to-face interviews conducted in Croatia during 2013, and using stepwise Tobit regression analysis, the finding is that after controlling for other explanatory variables, participation in the informal economy results from the asymmetry between the norms, values and beliefs of citizens (informal institutions) and the codified laws and regulations (formal institutions). Reducing such institutional asymmetry is thus required if the informal economy is to be tackled. How this can be achieved in post-socialist societies is then discussed.

Keywords:

• Informal sector
• shadow economy
• undeclared work
• tax morale
• institutional theory
• Croatia, post-socialist societies

Disclosure statement

No potential conflict of interest was reported by the authors.