Entrepreneurship in the Shadow Economy: A Review of the Alternative Policy Approaches

Colin C Williams

Sheffield University Management School (SUMS),

University of Sheffield

Conduit Road, Sheffield S10 1FL, UK.

E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.


The aim of this paper is to review the various policy approaches that can be used to tackle entrepreneurship in the shadow economy. To do this, it firstly reviews four possible policy options, namely taking no action, eradicating shadow entrepreneurship, moving legitimate entrepreneurship into the shadow economy, or transforming shadow entrepreneurship into legitimate entrepreneurship. Revealing that transforming shadow entrepreneurship into legitimate entrepreneurship is not only the most viable option but also the approach most commonly adopted by supra-national agencies and national governments, a review is then undertaken of how this can be achieved using either direct controls, which seek to increase the costs of shadow entrepreneurship and/or the benefits of legitimate entrepreneurship, or indirect controls that seek to generate a commitment to compliance and greater self-regulation. How these approaches can be combined is then reviewed. The outcome is a comprehensive review and evaluation of the various policy approaches available to policy-makers for addressing shadow entrepreneurship along with some recommendations regarding the way forward. 

Keywords: entrepreneurship; informal economy; shadow economy; tax compliance; public policy.

JEL codes: E26, H26, J46, O17


International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.1 (July 2015), pp. 51 - 82 © 2015 by Center for Industry, SME and Business Competition Studies, USAKTI ISSN:2442-9368 electronic 

 Download International Journal in PDF