# The Role of Accounting in the Informal Economy Impacts and importance of accounting practices in the informal sector - **Source:** [Journal of Accounting and Economics](https://www.sciencedirect.com/journal/journal-of-accounting-and-economics) - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/f6d9e30b-5de8-46ac-8a31-0f7fd2c6b617 ## Dimensions of the Informal Economy The informal economy accounts for 30-60% of GDP in developing countries. Small businesses and individual entrepreneurs dominate this sector. These unregistered activities cause significant tax revenue losses. The 2026 study provides comprehensive analysis with data from 50 countries. ## Lack of Accounting Practices Over 85% of informal businesses don't maintain basic accounting records. Cash transactions and undocumented trade are prevalent. This lack of transparency hinders financial inclusion. Researchers estimate that adopting simple accounting tools could boost economic growth by 15%. ## Impact of Tax Losses Global annual tax loss due to informal economy exceeds $1.5 trillion. This deficit limits investments in education and healthcare infrastructure. African and South American countries face higher rates. The study suggests simplified tax systems as potential solution. ## Potential of Digital Solutions Mobile accounting applications show promise for informal businesses. A pilot program in India enrolled 10,000 small businesses in digital record-keeping. 72% qualified for formal credit within six months. Low-cost tech solutions improve accessibility significantly. ## Education and Awareness Gap 60% of informal sector workers lack basic financial literacy. Awareness about accounting importance remains low. Free training programs by local governments increase participation. A Brazilian project showed 48% of trained merchants transitioned to formal economy. ## Policy Recommendations The research proposes three key policies: Simplified tax regimes, incentives for digital tools, and financial literacy programs. Mexico's 'Invoice Culture' program reduced informality by 18%. Experts recommend scaling such initiatives globally. ## Need for Global Cooperation International collaboration is crucial to combat informal economy. World Bank data shows multilateral projects increase success rates by 40%. G20 countries are expected to lead this effort. A 2027 global initiative allocated $100 million budget. ## Importance for Sustainable Development Integrating informal economy into formal systems is critical for SDGs. Increased formal employment strengthens social security systems. The study predicts 300 million people could transition by 2030. This transformation enables inclusive economic growth. ## Sources covering this story - https://www.sciencedirect.com/science/article/pii/S0165410126000789?dgcid=rss_sd_all — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._