Beyond a Deterrence Approach towards the Undeclared Economy: Some Lessons from Bulgaria

Abstract

Until now, the undeclared economy has been tackled in Balkan countries by increasing the penalties and risk of detection so as to deter participation. Recently however, calls have been made for a new more indirect approach that improves tax morale in order to foster a culture of commitment to compliance. The aim of this paper is to evaluate these contrasting policy approaches. Reporting evidence from 1,018 face-to-face interviews conducted in Bulgaria during 2013, logistic regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong association between participation in undeclared work and the level of tax morale. The paper concludes by discussing the theoretical and policy implications of the findings.

Illegitimate Economic Practices in Croatia: Findings from a Representative Survey of 2,000 Citizens

“…Yet people from larger towns are significantly less likely to work undeclared than their counterparts from smaller towns and rural areas. These results largely confirm many previous studies on undeclared work in both South-East European and the European Union (Williams and Franic, 2016b;Horodnic, 2015a,c,d, 2016b,c;Williams and Kayaoglu, 2016;.…”

Evaluating competing perspectives towards undeclared work: some lessons from Bulgaria

“…Indeed, this rational economic actor perspective is dominant in Bulgaria, the country studied in this paper. Firstly, sanctions have been increased and secondly, the likelihood of detection improved such as by increasing workplace inspections and by improving data sharing and matching across government in order to identify individuals potentially engaged in undeclared work (Dzhekova and Williams 2014;Williams and Franic 2016a;Williams et al 2014). A review of the measures used to tackle undeclared work in Bulgaria between 2005 and 2009, the majority were deterrence measures, with 64 measures alone related to tougher snactions and imporving the probability of being caught through monitoring, data exchange, and more efficient inspections (CSD 2009).…”

An Institutional Theory of Tax Non- Compliance in Bulgaria: a Tax Morale Approach

“…The result is that they receive preferential treatment and state resources are diverted towards them. For those not part of these elites who capture the resources of the state, the result is burdensome taxes, and relatively fewer public services in return for the taxes and social contributions they pay (De Soto, 1989;Siqueira et al, 2016;Williams et al, 2016). In nations where state capture is more prevalent, in consequence, citizens have lower levels of tax morale because the citizens feel cheated (Chan et al, 2018;Saitta, 2017;Torgler, 2001;Torgler et al, 2007b).…”