Informal Sector in Developed and less Developed Countries: A Literature Survey

The main goal of this study is two-fold: (1) to provide a general overview of the contributions to the literature on the informal sector, with a special focus on the Public Choice approach; and (2) to compare these contributions across two institutionally different types of countries: developed and less developed (developing and transition) countries. The paper focuses on the criteria used to define the informal sector, the relationship between the formal and informal economy, tax evasion, and Public Choice analysis. It is stressed throughout this paper that the distinction between the two types of countries is of key importance.