A recent study suggests that when populist rhetoric intensifies within a country, entrepreneurs become less likely to register their businesses formally. Instead, many opt to operate informally, which allows them to avoid taxes and bypass government regulations. This behaviour reflects a broader relationship between political discourse and economic decision-making, indicating that shifts in the political environment may shape how individuals approach starting new ventures.

“Populist rhetoric refers to political language that emphasises the ‘will of the people’ while criticising a supposedly ‘corrupt elite,’” explains Tim Michaelis, co-author of the study and an assistant professor of psychology at North Carolina State University. According to Michaelis, this style of political messaging can weaken trust in institutions and established systems, increasing uncertainty in the broader environment. Previous research has shown that when institutional uncertainty rises, entrepreneurs are more likely to pursue “informal venture entry”, meaning they start a business but choose not to register it with government authorities.

The researchers wanted to examine this relationship in greater depth. Specifically, they aimed to determine whether the connection between populist rhetoric and informal business formation appears across both wealthier economies and those that are developing or emerging. The team was also interested in understanding whether social and cultural influences might affect these decisions. This led them to examine the concept of cultural tightness and how it might interact with political rhetoric.

Cultural tightness refers to the degree to which societies enforce social norms and discourage behaviour that deviates from them. In cultures considered “tight”, behavioural expectations are clearly defined, and violations of those expectations tend to be punished more strongly. In contrast, “looser” cultures allow a wider range of behaviours and show greater tolerance for deviation from established norms. Researchers have found that people living in tighter cultures are generally more inclined to follow rules and conform to shared expectations.

Michaelis notes that cultural tightness tends to remain relatively stable over time rather than fluctuating rapidly. However, the research team suspected that strong cultural tightness might amplify the effects of populist rhetoric. When national leaders promote messages that challenge or criticise established institutions, individuals in tightly structured cultures may become even more uncertain about whether those institutions can be trusted or relied upon.

To investigate these questions, the researchers analysed data from 10,474 entrepreneurial ventures across 13 countries spanning lower-, middle-, and high-income economies. The study drew on several major datasets, including measures of populist rhetoric from the Global Populism Database and firm-level information from the World Bank Enterprise Survey. The countries in the sample included three in Latin America, eight in Europe and Central Asia, and two in South and East Asia.

Using statistical modelling, the researchers examined which factors influenced entrepreneurs’ decisions to operate informally rather than registering their ventures. The results revealed a clear pattern: stronger populist rhetoric was associated with a higher likelihood that entrepreneurs would start businesses without formal registration. In the study, populist rhetoric was measured on a scale from 0 to 2. A one-point increase on that scale corresponded with a 76 per cent increase in the probability that entrepreneurs would choose informal venture entry.

For example, the researchers observed that an increase of one point in populist rhetoric coincided with a rise in unregistered new businesses from roughly 5 per cent to about 8.6 per cent. Cultural tightness further amplified this effect. In countries with higher levels of cultural tightness, the share of new ventures operating without registration could increase to around 11.5 per cent. Given that millions of businesses may be created annually within a single country, even relatively small percentage changes can translate into a large number of firms remaining outside formal regulatory systems.

The findings suggest that uncertainty plays a central role in these decisions. Entrepreneurs often seek predictable and reliable environments when launching new ventures. When political rhetoric undermines confidence in government institutions or financial systems, individuals may become more cautious about engaging with formal regulatory structures. While operating informally can provide short-term flexibility, it can also create long-term limitations, such as difficulties expanding domestically or entering international markets. The study ultimately highlights the complex relationship between political rhetoric, cultural context, and entrepreneurial behaviour in an era of increasing political polarisation.

More information: Paul Sanchez-Ruiz et al, Populism, cultural tightness, and informal venture entry, Journal of Business Venturing. DOI: 10.1016/j.jbusvent.2026.106587

Journal information: Journal of Business Venturing Provided by North Carolina State University