Tackling the participation of Europe’s rural population in the shadow economy

To tackle the shadow economy, an emergent literature has called for the conventional rational economic actor approach (which uses deterrents to ensure that the costs of engaging in shadow work outweigh the benefits) to be replaced or complemented by a social actor approach which focuses upon improving tax morale. To evaluate the relevance and validity of doing this in rural areas, we here report face-to-face interviews conducted with 9,677 rural dwellers conducted across the 28 member states of the European Union (EU28) in 2013. Multilevel logistic regression analysis reveals that both approaches significantly reduce the rural shadow economy. When tax morale is high, however, deterrence measures have little impact on reducing the rural shadow economy and it is only when tax morale is low that raising the level of deterrents has greater impacts, with increasing the risks of detection (which is problematic in dispersed rural populations) leading to higher reductions in the rural shadow economy than increasing punishments. The paper thus concludes by calling for greater emphasis in rural areas on improving tax morale to tackle the shadow economy in Europe and beyond

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

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

Self-employment, the informal economy and the marginalisation thesis: Some evidence from the European Union

© Emerald Group Publishing Limited. Purpose-The purpose of this paper is to evaluate which groups of the self-employed engage in the informal economy. Until now, self-employed people participating in the informal economy have been predominantly viewed as marginalised populations such as those on a lower income and living in deprived regions (i.e. the “marginalisation thesis”). However, an alternative emergent “reinforcement thesis” conversely views the marginalised self-employed as less likely to do so. Until now, no known studies have evaluated these competing perspectives. Design/methodology/approach-To do this, the author report a 2013 survey conducted across 28 countries involving 1,969 face-to-face interviews with the self-employed about their participation in the informal economy. Findings-Using multilevel mixed-effects logistic regression analysis, the finding is that the marginalisation thesis applies when examining characteristics such as the age, marital status, tax morality, occupation and household financial circumstances of the self-employed engaged in the informal economy. However, when gender and regional variations are analysed, the reinforcement thesis is valid. When characteristics such as the urban-rural divide and educational level are analysed, no evidence is found to support either the marginalisation or reinforcement thesis. Research limitations/implications-The outcome is a call for a more nuanced understanding of the marginalisation thesis that the self-employed participating in the informal economy are largely marginalised populations. Originality/value-This is the first extensive evaluation of which self-employed groups participate in the informal economy

Tax morale and institutional theory: a systematic review

Purpose The purpose of this paper is to conduct a systematic review of the factors that shape tax morale. A large range of random explanatory variables identified in the literature as determinants of tax morale are synthesised and structured by drawing inspiration from the institutional theory. Design/methodology/approach To do this, a systematic search has been conducted using a library catalogue which provides access to more than 400 databases. Findings The finding is that the institutional theory provides a suitable theoretical basis to explore tax morale. Indeed, all the factors until now identified as determinants of tax morale (except the control variables/socio-demographic characteristics) can be categorised either as belonging to formal institutions or to informal institutions. The most salient factor is trust, with both vertical and horizontal trust positively related to tax morale. Research limitations/implications The outcome is a call for a more nuanced understanding of not only the effect of formal and informal institutions on tax morale but also how formal and informal institutions interact and alter each other and, consequently, affect tax morale. Practical implications The paper seeks to encourage governments to start recognising that as low tax morale arises when a gap exists between formal and informal institutions, they need to design policy measures aimed to reduce this gap, rather than persisting with deterrence measures. Originality/value This is the first systematic review of the factors that influence tax morale using an institutionalist lens

Evaluating competing public policy approaches towards the informal economy: some lessons from the United Kingdom

Purpose: Conventionally, participation in the informal economy has been explained by viewing citizens as rational economic actors participating when the pay-off is greater than the expected cost of being caught and punished, and thus tackled by raising the sanctions and risks of detection. Given that many citizens do not engage even when the benefits outweigh the costs, a new social actor approach has begun to emerge which explains the informal economy as arising when tax morality is low and seeks to foster commitment to compliance. The aim of this paper is to provide an evidence-based evaluation of these competing policy approaches. Methodology: To do so, the results are reported of 1,306 face-to-face interviews undertaken during 2013 in the United Kingdom. Findings: The finding is that raising the sanctions and risks of detection has no significant impact on the likelihood of participation in the informal sector. However, participation in the informal economy is significantly associated with tax morality. Indeed, the only time that increasing the sanctions and risks of detection reduces the level of participation in the informal economy is amongst citizens with very low tax morality. Practical Implications: Rather than continue with the current rational economic actor approach of increasing the penalties and risks of detection, this case study of the UK reveals that a new policy approach is required that seeks to improve tax morality by introducing measures to reduce the acceptability of participating in the informal economy. Whether this is more widely applicable now needs to be tested, given the dominance throughout the world of this punitive rational economic actor approach. Originality/value: This paper provides evidence supporting a new social actor approach towards explaining and tackling participation in the informal economy

Evaluating the Prevalence and Distribution of Envelope Wages in the European Union: Lessons from a 2013 Eurobarometer Survey

The aim of this article is to evaluate the prevalence and distribution in the European Union of a little discussed illegitimate employment practice whereby employers pay their formal employees both an official declared salary and an undeclared ‘envelope’ wage so as to evade the full tax and social security dues owed. To do this, a 2013 Eurobarometer survey involving 11,025 face-to-face interviews with formal employees in the 28 member states of the European Union is employed. The finding is that one in 33 employees received envelope wages during the 12 months prior to the survey, amounting on average to one quarter of their gross annual wage. Employers in East-Central and Southern European countries, and in smaller businesses, are more likely to use this fraudulent wage practice which is concentrated amongst weaker more vulnerable employee groups such as younger, skilled and unskilled manual workers, those facing financial difficulties and those with fewer years in formal education, but interestingly, also professionals and those travelling for their jobs. The paper then discusses possible causes as well as the policy options and approaches for tackling this illicit wage practice

Who Participates in Undeclared Work in the European Union? Toward a Reinforced Marginalization Perspective

Representations of who participates in undeclared work have adopted either a marginalization thesis which holds that undeclared work is conducted disproportionately by the unemployed or a reinforcement thesis which holds that it is conducted disproportionately by the employed. Reporting a 2013 survey of participation in undeclared work involving 27,563 face-to-face interviews conducted in 28 European Union (EU) member states, the finding is that although the unemployed are more likely to engage in undeclared work, they undertake only 20 per cent of all undeclared work and receive significantly lower earnings from the undeclared economy than those in declared jobs, meaning that their participation reinforces their marginalized position relative to the employed. Moreover, those in declared employment who benefit least from the declared labor market (e.g., younger people, those with financial difficulties) are again more likely to engage in undeclared work, but have lower financial gains from their undeclared work than those who benefit more from declared employment. The outcome is a tentative call for a new reinforced marginalization theoretical perspective which holds that although marginal groups are more likely to engage in undeclared work, they gain less from their undeclared work, meaning that the undeclared sphere reinforces the marginalization produced by the declared economy

Explaining the prevalence of the informal economy in the Baltics: an institutional asymmetry perspective

Reporting a 2013 Eurobarometer survey of participation in the informal economy across eight Baltic countries, this paper tentatively explains the informal economy from an institutional perspective as associated with the asymmetry between the codified laws and regulations of the formal institutions (state morality) and the norms, values and beliefs of citizens (civic morality). Identifying that this non-alignment of civic morality with the formal rules is more acute when there is greater poverty and inequality, less effective redistribution and lower levels of state intervention in the labour market and welfare, the implications for theorising and tackling the informal economy are then discussed

Who engages in undeclared work in urban Europe? A critical evaluation of the marginality thesis

The view that undeclared work is undertaken by marginalised populations (i.e., those groups relatively excluded from the formal labour market) is a core assumption of not only modernisation theory, which holds that undeclared work is conducted by and for marginal population at the ‘bottom of the pyramid’, but also political economy theory, which views contemporary capitalism to outsource and subcontract production to the undeclared economy where marginalised populations conduct such work as a survival strategy. Until now however, few extensive evaluations of the validity of this marginality thesis have been conducted in relation to urban environments. To fill this gap, this paper reports data from a 2013 cross-national survey of urban populations in 28 European member states. Using multilevel mixed-effects logistic regression analysis, this reveals that although some marginalised groups in urban Europe (those having difficulties paying their household bills and younger age groups) are significantly more likely to participate in undeclared work, others are not (the unemployed) and yet others (women and urban dwellers in less affluent European regions) are significantly less likely to participate. The outcome is a more variegated theorisation of which marginal groups participate in undeclared work in urban areas and the need for policy towards the undeclared economy to address this more nuanced understanding

Cash wage payments in transition economies: consequences of envelope wages

In transition economies, a significant number of companies reduce their tax and social contributions by paying their staff an official salary, described in a registered formal employment agreement, and an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The consequences include a loss of government income and a lack of fair play for lawful companies. For employees, accepting under-reported wages reduces their access to credit and their social protections. Addressing this issue will help increase the quality of working conditions, strengthen trade unions, and reduce unfair competition