The trust factor that propels us to pay our taxes
Fining or increasing the chances of detecting people who don’t declare work to the authorities is often considered the best way to reduce the cash-in-hand economy. The SHADOWS EU study has concluded those methods alone are ineffectual. “Despite the increasing importance attributed by governments to deterrent measures, both citizens and businesses are influenced by other factors when deciding whether to participate in undeclared work,” concluded research fellow Ioana Horodnic and professor of public policy at Sheffield University Colin Williams. “To tackle undeclared work in a more effective manner, preventative measures and measures aimed at fostering trust need to complement deterrent measures,” they advised in their paper on the results of SHADOWS. With support from the Marie Skłodowska-Curie programme, Horodnic carried out 40 in-depth interviews of workers in Romania, where citizens estimated between 50 and 100 % of people engaged in undeclared work, and in the UK, where citizens put it at 10 to 50 %.
Real tax incentives
Horodnic reviewed the previous literature on tax morality and two Eurobarometer surveys across EU Member States in 2007 and 2013, as well as two datasets from a survey conducted in 2015 in Bulgaria, Croatia and North Macedonia. She also considered employers’ views on why businesses underreport the number of employees and the level of their wages. Finally, she analysed the policies considered effective by enforcement bodies. Strikingly, the SHADOWS results found citizens justified not declaring work for similar reasons across the EU. The state of a country’s institutions, worker protections and perceived levels of corruption did have an impact. “The most dominant motive making undeclared work acceptable in the eyes of citizens is the misallocation of resources,” said Horodnic. While Romanians saw a lack of redistributive justice in the country’s tax system, Britons complained of a lack of procedural fairness. One Romanian asked why he should pay taxes when the roads were badly lit and so badly maintained they damaged his car. On one occasion he couldn’t get a broken finger treated until he offered a EUR 20 bribe. In the UK, the sense of unfairness was key. “The tax authorities in this country definitely tend to have a very strong focus on easy targets,” said one British interviewee. “They don’t tend to pick the big tax evaders because it is harder work.” Corruption was one of the largest factors undermining faith in society and the need to pay taxes to fund public services. In the UK, citizens associated it with powerful institutions whereas Romanians felt it also extended to their fellow citizens. The SHADOWS project could help shape future efforts to encourage workers to move from undeclared work to declared work. Along with a Facebook page, the two policy briefs produced on the project were included in the virtual library of the European Platform tackling undeclared work, set up in 2016, on the DG Employment, Social Affairs and Inclusion website, freely available to all.
Keywords
SHADOWS, undeclared work, trust, corruption, tax system
