Informal Economy, its Concept and Classification. A Way Towards its Formalization

Abstract

The present research is aimed at defining informal economy on a theoretical basis
comprising formality and integration as a way towards its formalization. No uniform
studies with regard to this economic sector were available in Mexico. Informal economy
was classified into four large groups: commercial activities, industrial activities, hired
professional services, and tourist industry, together with their respective subdivisions.
Five principles to build up a simplified fiscal accountable model suitable for informal
economy characteristics were determined. Findings indicated that informal economy is a
many-sided phenomenon no matter the development status of nations. The concept of
informal economy stated by the authors is mainly focused on its exclusion from the
gross domestic product (GDP) and its self-employment character. This being the case, a
de jure employment without juridical, fiscal, and administrative obligations is generated
and the individual's role is considered like an irregular condition by the treasury and
administration authorities. It is apparent that “irregular” is the appropriate term to classify
the activities from informal economy due to their legal status.