Confronting the Shadow Economy
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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.
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Chapter 2: The variable magnitude of the shadow economy

Colin C. Williams


To understand these startling variations, this chapter evaluates the array of techniques used to produce estimates of its size. These range from indirect to direct measurement methods (for reviews, see Bajada, 2002; Thomas, 1988, 1992; OECD, 2002, 2012; Schneider and Enste, 2002; Williams, 2004a, 2006a; Williams and Windebank, 1998). On the one hand, and for those assuming that research participants will not be forthcoming about their participation in the shadow economy, indirect evidence of its size is collected from macroeconomic data collected and/or constructed for other purposes. The belief is that even if those participating in the shadow economy wish to hide their shadow work, macroeconomic data will reveal such activity and such statistical traces are analysed by these indirect approaches. On the other hand are those assuming that, although shadow work is illegal in terms of the laws and regulations of formal institutions, it is often considered a legitimate endeavour in the eyes of the informal institutions (that is, the norms, values and beliefs). As such, and unlike criminal activities, this work that is hidden in plain sight will be openly discussed thus making reliable collection possible using direct survey methods. Here, therefore, and to evaluate critically the contrasting methods used when measuring the magnitude of the shadow economy, first, this chapter reviews the relatively indirect methods that seek statistical traces of the shadow economy in data collected for other purposes.

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