Confronting the Shadow Economy

Confronting the Shadow Economy

Evaluating Tax Compliance and Behaviour Policies

Colin C. Williams

Beginning with a review of the extent of undeclared work, the author discusses the discrepancies between regions and the potential impacts of the economic crisis, comparing the nature of the potential solutions available with those actually adopted. The way forward, the book concludes, is to move away from increasing the costs of engaging in hidden work using repressive measures, and concentrate more on developing initiatives that enhance the benefits of engaging in declared work and increase the likelihood of compliance by engendering a commitment to tax morality.

Chapter 3: The variable character of the shadow economy

Colin C. Williams

Subjects: business and management, business ethics and trust, economics and finance, economic crime and corruption, labour economics, public choice theory, public finance, politics and public policy, political economy

Extract

Until now, there has been a paucity of research on the nature of work in the shadow economy. This has hampered informed discussion about how to tackle the shadow economy. In this chapter, the largest and most up-to-date survey of the nature of work in the shadow economy is reported, namely Special Eurobarometer No. 402 (‘Undeclared Work in the European Union’) (European Commission, 2014a). This survey conducted across the 28 member states of the European Union (EU-28) in April and May 2013 involved 26,653 face-to-face interviews with participants at home in their mother tongue. Although exponents of indirect methods often treat the results of such direct surveys with caution because respondents will not be forthcoming about their work in the shadow economy, in 90.9 per cent of the interviews conducted, interviewers reported fair or excellent cooperation on the part of the respondent. In only 1.2 per cent of cases was cooperation bad. Even if hidden from the state for tax and social security purposes, therefore, participants appear to discuss openly their shadow economy participation with researchers. This may well be because, although the laws, codes and regulations of the formal institutions of societies may deem work in the shadow economy to be illegal, such work is often deemed legitimate in terms of the informal institutions (that is, the norms, values and beliefs) of societies or particular population groups (Larsen, 2013a, 2013b; Webb et al., 2009). As such, it is discussed openly with researchers.

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