Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach

To explain the shadow economy in the Baltic states of Estonia, Lithuania and Latvia, this paper evaluates the relationship between the shadow economy and tax morale. Viewing tax morale as a measure of the symmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the proposition is that the lower the tax morale (i.e. the greater the asymmetry between state morality and civic morality), the greater is the likelihood to participate in the shadow economy. To evaluate this, a 2013 survey is reported involving 3036 face-to-face interviews in these 3 Baltic nations. Using logistic regression analysis, the finding is that the likelihood of participating in the shadow economy is greater, the lower is the tax morality of individuals, population groups and countries. In addition, the likelihood to participate is shadow economy is found to significantly vary by, for example, gender, employment status and country, people living in Latvia and Lithuania displaying significantly lower likelihood to engage in the shadow economy. The paper then explores the implications for theorizing and tackling the shadow economy

Evaluating the relationship between social exclusion and participation in the informal sector in the European Union

Purpose This paper evaluates who engages in informal work. The intention in doing so is to analyse whether important causal factors of social exclusion such as age, education, gender and employment status, influence participation in informal work in the European Union. Methodology To do this, a 2013 Eurobarometer survey of who participates in undeclared work in 28 European member states is reported. Findings Using multilevel mixed-effects logistic regression analysis, the finding is that although some marginalised groups (the unemployed, those having difficulties paying their household bills, the working class and younger age groups) are significantly more likely to participate in the informal sector, others are not (those with less formal education and living in rural areas) and yet others (women and people in deprived European regions) are significantly less likely to participate. Research implications The outcome is a call for a nuanced and variegated understanding of the relationship between participation in the informal sector and social exclusion. Practical implications These results display the specific populations that need targeting when seeking to tackle informal work, revealing for example that the current the allocation of European funds for tackling informal work in poorer EU regions is mistaken, but that the targeting of the unemployed is not and current policy initiatives such as smoothing the transition from unemployment to self-employment worthwhile. Originality/value This is the first extensive evaluation of the relationship between participation in the informal sector and social exclusion at the level of the European Unio

Knowing and unknowing purchases of undeclared healthcare goods and services : the role of vertical and horizontal trust

Although major advances have been made in relation to explaining the supply side of the informal economy, this is not the case for the demand-side of the informal economy. This study analyses for the first time the purchasers of undeclared goods and services in the healthcare sector. To evaluate the purchase of undeclared healthcare goods and services, logistic regression analysis and robustness tests are used on 3048 interviews in Cyprus, Greece, Italy and Malta. The finding is that an important share of the purchasers make this type of purchase unknowingly. However, no difference in terms of socio-economics characteristics of those who knowingly and those who unknowingly made purchases of undeclared healthcare goods and services was identified. Meanwhile a significant influence of trust (in government and in other citizens) has been identified in relation to those who made these purchases knowingly. As such, policy measures aimed at decreasing unknowing purchases and at nurturing trust are discussed in the concluding section

Institutional determinants of informal payments for health services : an exploratory analysis across 117 countries

Healthcare accessibility and equity remain important issues, as corruption in the form of informal payments is still prevalent in many countries across the world. This study employs a panel data analysis over the 2006–2013 period to explore the role of different institutional factors in explaining the prevalence of informal payments. Covering 117 countries, our findings confirm the significant role of both formal and informal institutions. Good governance, a higher trust among individuals, and a higher commitment to tackling corruption are associated with diminishing informal payments. In addition, higher shares of private finance, such as out-of-pocket and domestic private health expenditure, are also correlated with a lower prevalence of informal payments. In policy terms, this displays how correcting institutional imperfections may be among the most efficient ways to tackle informal payments in healthcare

Informal payments by patients, institutional trust and institutional asymmetry

The aim of this paper is to evaluate the extent of the practice of using informal payments for accessing the services of public clinics or hospitals across Europe and to explain the prevalence of this corrupt practice using the framework of institutional theory. To achieve this, a multi-level mixed-effect logistic regression on 25,744 interviews undertaken in 2020 with patients across 27 European Union countries is conducted. The finding is that the practice of making informal payments remains a prevalent practice, although there are large disparities in the usage of this practice in different European countries. However, informal payments by patients are more likely when there is a lower institutional trust and a higher degree of asymmetry between formal and informal institutions. The resultant proposal is that policy makers need to address the institutional environment to tackle such informal payments. How this can be achieved is outlined

Employer perspectives on undeclared work in the service sector : impacts and policy responses

The aim of this paper is to evaluate the impact on service sector businesses of competitors’ undeclared work practices and the policy measures service enterprises perceive as most effective in tackling such noncompliant behaviour. The results of a survey with 1,130 service sector businesses reveals that illegal competition is the most common major obstacle for their activity and more than a half are severely affected by competitors undertaking undeclared work. However, the proportion of businesses perceiving competitors undertaking undeclared work as a major obstacle varies across different service industries, as do the policy measures that businesses view as required to tackle undeclared work. The paper concludes by discussing the policy implications and calling for a shift from the dominant deterrence approach aimed at eradicating undeclared work to measures aimed at supporting the transition to declared work

Explaining consumer motives to purchase in the informal economy

Usually, studies on the informal economy focus mainly upon those working in the informal economy (supply side). However, many exchanges in the informal economy are initiated by purchasers asking how much a good or service costs if paid cash in hand. Therefore, the aim of this paper is to advance understanding of who make purchases in the informal economy and the reasons of the consumers making these purchases (demand side). Two potential explanations are evaluated. Firstly, consumers are explained as rational economic actors seeking a more convenient deal or profit maximisation (i.e., lower price or better value for money), making purchases from the informal economy due to the lack of availability of the product or service they need on the formal market, or they make such purchases involuntarily, due to the lack of perfect information necessary to make a fully rational economic decision when purchasing. Secondly, the consumers are portrayed as social actors pursuing community help. Using a multilevel mixed-effects logistic regression analysis on a 2019 Eurobarometer interviews in 27 EU member states and the UK reveal how the prevalence of these motives significantly varies across populations and regions. The theoretical and policy implications of the findings are discussed in the concluding section

Extent and distribution of unregistered employment in the service industries in Europe

Although a voluminous literature exists on the prevalence of the informal economy, few studies evaluate unregistered employment and none its prevalence and distribution across the service industries. This paper fills that gap. Reporting a 2015 European Working Conditions Survey based on 43,850 face-to-face interviews, the finding is that 7% (1 in 14) of service industry employees have no written contract of employment across the 35 European countries surveyed, although this varies from 34% in Cyprus to 1% in Sweden. A logistic regression analysis at the European level reveals significant associations between the propensity to work with no contract and various individual-, household- and firm-related characteristics, with unregistered employment more prevalent among women, younger people, those with fewer years in education, migrants, those living in households unable to make ends meet, those working in smaller businesses, and the hospitality and household service sectors. The theoretical and policy implications are then discussed

Explaining the Prevalence of Illegitimate Wage Practices in Southern Europe: An Institutional Analysis

This paper proposes that the prevalence of illegitimate wage practices in Southern European societies results from the discord between the formal rules (formal institutions) and the socially shared unwritten rules that reflect citizens' beliefs (informal institutions). To evaluate this, a 2013 survey is reported on whether employers in five Southern European countries fraudulently evade tax and social security payments by paying employees a portion of their salary off the books. A strong association is revealed between the extent of wage under-reporting and the degree of institutional asymmetry across these societies. The implications for theorising illegitimate wage practices are then explored

Explaining informal payments for health services in Central and Eastern Europe: an institutional asymmetry perspective

The aim of this paper is to propose and evaluate a new institutional theory explanation for patients making informal payments for health services in Central and Eastern Europe. This views informal payments by patients to healthcare professionals as arising when formal institutional failures lead to an asymmetry between the laws and regulations of formal institutions and the unwritten rules of informal institutions. Reporting a 2013 Eurobarometer survey of the prevalence of informal payments by patients in Central and Eastern European countries, a strong association is revealed between the level of asymmetry between the formal and informal institutions, and the propensity to make informal payments. The association between informal payments and various formal institutional imperfections is then explored to evaluate which structural conditions might reduce this institutional asymmetry, and thus the propensity to make informal payments. The paper concludes by exploring the implications for tackling such informal practices