Although this school of thought went into abeyance with the rise of the rational economic actor model from the 1970s, since the turn of the millennium, it has resurfaced (see for example, Alm et al., 2012; Kirchler, 2007; Torgler, 2007, 2011).
Although some argue that this social actor approach is an alternative to the rational economic actor approach (Eurofound, 2013; Williams, 2014a), the vast majority of scholars have asserted that these are complementary rather than competing approaches.
These results thus confirm the rational economic actor approach; increasing the actual or perceived penalties and risks of detection reduces the likelihood of urban populations participating in the informal economy.
Is it the case however, that urban populations decrease their level of participation in the informal economy if a government combines the conventional rational economic actor approach of increasing the level of punishments and/or risk of detection, with the social actor approach of improving tax morale?
In this paper, we have evaluated the various policy approaches available for tackling the urban informal economy, namely the conventional rational economic actor approach which seeks to increase the penalties and risks of detection, and the social actor approach which seeks to improve tax morale, as well as the interaction effects of combining them.