turnover to remain below the threshold and benefit from the lower tax. By estimating the number of firms in the spike below the threshold, the authors estimate that approximately 66% of corporate income tax liabilities are evaded through misreporting.

# **VII.  Recent studies by region:  Low-income countries**

In their assessment of the main conclusions of studies of informality in Africa, Mbaye and Benjamin (2014) note especially: the dominant share of the informal sector in African economies to a degree that is greater than anywhere else. In sub-Saharan Africa, the informal sector comprises 50-70 percent of total output and 60 to 90 percent of non-farm employment. Thus study of the informal sector in Africa takes on particular significance.

## **A. Southern and Eastern Africa**

Gelb et al. (2009) compare the productivity of formal firms and informal firms using surveys on the investment climate for a number of countries of southern and eastern Africa. Their results confirm that formal sector firms are on average more productive than informal ones but the gap between formal and informal firms is much less for east African countries than for southern African countries. They attribute this to the difference in the quality of the business environment and the enforcement of rules. The relative weakness of the state in East Africa undermines the performance of formal firms, thereby lowering the gap between informal and formal firm productivity.

They confirm that the quality of the regulations, and especially the power of the state to enforce the regulations, applies to firms by conditioning a large degree of their decision of whether to go into the informal sector or not. According to them, it is necessary to distinguish between two cases: a) the case where we find in the informal sector educated individuals managing productive firms with a large potential to expand; in this case, improving the regulations and access to services could bring them to formalize; b) the case where the regulations are already good and where we only find in the informal sector firms that are developing survival strategies. In this latter case, aiding them with better access to social services will only maintain their survival at best.

They expanded on the Lucas (1978) model to take into account the informal sector in order to test a certain number of the following hypotheses:

1. the most talented entrepreneurs are always in the formal sector,

2. a higher tax rate pushes talented entrepreneurs to the informal sector, 3. informal firms are smaller than formal firms, 4. informal sector entrepreneurs make less than those of the formal sector, 5. informal sector firms are less productive than those of the formal sector.

With their sample of firms from southern and eastern Africa, they validated the hypothesis that entrepreneurs of the formal sector are more educated (education was used here as a proxy for talent) than those of the informal sector. Concerning the productivity difference, they found that the advantages tied to legalization could be weak when services to firms are of bad quality, or when, taking advantage of the corruption of certain state agencies, agents of the informal sector can escape the obligations resulting from informality. This result confirms the thesis in which the weakness of regulations in some states 25