Tackling the Underground Economy in Deprived Populations: A Critical Evaluation of the Deterrence Approach

Abstract

The aim of this paper is to evaluate critically the public policy approach that seeks to tackle the underground economy in deprived populations by deterring people from engaging in such work by ensuring that the expected cost of being caught and punished is greater than the economic benefit of participating. Reporting evidence from an extensive study of underground work in 861 households in contemporary England, this paper uncovers that although some underground work in such populations is conducted for purely money-making purposes, the majority is carried out for friends, neighbors and kin for rationales associated with redistribution and building social capital rather than purely to make or save money. As such, the argument here is that unless governments seek to develop substitute mechanisms to enable engagement in such paid favors but on a legitimate basis alongside deterrence measures, then attempts to tackle the underground economy in deprived populations will end up destroying the social support networks that other realms of public policy are presently so actively seeking to develop. The paper concludes by providing an outline of the public policy changes required.

Keywords: Informal sector, household work practices, livelihoods, economic development, England

JEL Classification: H26, J46, J48, K34, K42, O17