Informal economy is an area that has been a subject of a lot of studies. Because of the nature of the informal economy, it is not easy to study and to calculate it. In this paper we analyze some cost of informality of the firms.
Informal economy means hiden economy. As such, the firms that are working on informal sector, hide their activity from official authority. For big firms, to hide their activity is very difficult. For this reason, the firms that work in the informal sector tends to stay small in order not to get cought on their informal activity.
This stops these company to take the benefits of economy of scale.
Moreover, the firms that work in informal sector compete with the companies that work on formal sector. This have an impact on development of the companies that work on formal sector.
As a result, many of the companies in economy tend to stay small even though it is not effecient to do this.
Recently, in Albania, a new Law have been in power to avoid the informality in the companies. The result of these changes will be shown on the comming years, but based on the experiece of other countries, this is not the way of fighting informality.
Informal economy, small firms, Formal sector, fiscal policy
