Evaluating Tax Compliance and Behaviour Policies
Chapter 7: Supply-side incentives for businesses
In the deterrence approach, the emphasis is on increasing the costs of operating in the shadow economy. However, the recognition that the objective is not simply to eradicate the shadow economy, but to shift shadow work into the declared economy, has resulted in a shift towards making it easier and more beneficial to operate in the declared economy (Renooy et al., 2004; Small Business Council, 2004; Vanderseypen et al., 2013; Williams, 2006a; Williams and Renooy, 2013). Rather than use ‘sticks’ to punish ‘bad’ (non-compliant) behaviour, an approach has emerged which provides ‘carrots’ that reward ‘good’ (compliant) behaviour rather than taking it as given. This is based on the premise that punishing people for doing something wrong (that is, negative reinforcement) is relatively ineffective compared with the positive reinforcement of good behaviour. Such a positive reinforcement approach is applied to three different groups. First, there are businesses thinking about or actually operating in the shadow economy, second, individual taxpayers considering or actually operating in the shadow economy and, third and finally, customers of goods and services from the shadow economy. In this chapter the focus is upon the policy measures to make it easier and/or reward businesses operating in the declared economy, namely simplifying compliance, direct and indirect tax incentives, reverse VAT charges, supply chain responsibility, support and advice to business start-ups, help with recordkeeping and changing the minimum wage.
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