Fiscal policy is mainly financed by tax revenues and debt.
In a system where the informal economy predominates, the state is financed mainly by debt.
What is an informal economy?
The informal economy refers to a set of economic activities, enterprises, jobs and workers that are not subject to national labor legislation, income tax or the right to social protection or certain other social benefits (notice of dismissal, severance pay, annual or sick leave, etc.).
According to the International Labour Organization (ILO, 2018), the informal economy employs more than 61% of the world's working population, the majority of which is in emerging and developing countries. More particularly in Africa, 85.8% of jobs are informal.
The informal economy leads to a decline in tax revenues, which can hamper the government's ability to spend on social programs and investments.
For example:
- Activity of selling smuggled gasoline known as "kpayo" on the roadsides in Benin
- Undeclared activity of small traders and resellers
- Activity of motorcycle-taxi drivers in Benin called "Zemidjans".
CJEA