Evaluating the policy approaches for tackling undeclared work in the European Union

Abstract

When tackling the undeclared economy, an emergent literature has called for the conventional rational economic actor approach (which uses deterrents to ensure that the costs of undeclared work outweigh the benefits) to be replaced or complemented by a social actor approach which focuses upon improving tax morale. Evaluating the validity of doing so using 27,563 face-to-face interviews conducted in 2013 across Europe, multilevel logistic regression analysis reveals that both approaches significantly reduce participation in undeclared work. When tax morale is high, however, deterrence measures have little impact on reducing the probability of participation in undeclared work and it is only when tax morale is low that raising the level of deterrents has greater impacts, with increasing the perceived risks of detection in such contexts leading to higher reductions in participation in undeclared work than increasing the perceived punishments. The paper concludes by calling for more nuanced context-bound policy approaches.

Experiences, causes and measures to tackle institutional incongruence and informal economic activity in South-East Europe

“…Significantly, recent work has found support for both explanationswith their importance contingent on individual factors like gender, class, age etc. (Jones et al, 2006;Littlewood et al 2018;Williams and Horodnic, 2016). This work on motivations for informality, and indeed wider informal economy scholarship, has recently taken an institutional turn (see Webb et al, 2009, Welter andSmallbone, 2011;, with scholars increasingly applying institutional concepts and theory to explain informal economic activity.…”

“…Within a pan-European context, Williams and Horodnic (2016) provide an overarching examination of the relevance of a variety of policy options to tackle undeclared work. This includes an assessment of not only the validity of pursuing the conventional rational actor approach which seeks to increase the penalties of detection, but also the relevance of social actor approaches, and the possibility of combining both of these approaches.…”

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

“…Large fiscal deficits have forced governments around Europe to start actively seeking for efficient policy measures that would discourage economic subjects from various forms of tax evasion (Dekker et al, 2010;Eurofound, 2013;Williams & Nadin, 2012b;Williams, Windebank, Baric, & Nadin, 2013). To enhance collaboration of the member states in this respect, the European Commission established the European Platform Tackling Undeclared Work in May 2016 (European Commission, 2016).…”

Misclassification in Binary Choice Models with Sample Selection

“…First, we can note that the two models produce coherent estimates, consistent with other findings in the literature 3 , according to which the typical individual involved in undeclared work activities is a young 2 The variable "respondent cooperation" guarantees that the model is identified even if the assumption of normality does not hold, because it makes X 1 = X 2 . 3 The association between tax morale and the participation in undeclared activities is well known in the literature and was already observed in Europe using Eurobarometer data on all European countries (Williams and Horodnic 2017). unemployed male, who has financial difficulties in paying the household bills most of the time, lives in an urban area, has a very low perception of detection risk, his/her expected sanction for a fraudulent behavior is prison and there are no kids in the household. Now, however, not all the estimates are statistically significant.…”

“…", and 0 otherwise. The set of controls of the outcome equation were identified in accordance to the existing literature (Williams and Horodnic 2015a;Williams and Horodnic 2015b;Williams and Horodnic 2017). These include:…”