Periodic Reporting for period 1 - SHADOWS (SHADOWS: Tackling Undeclared Work in the European Union)
Reporting period: 2017-09-01 to 2019-08-31
Across the member states of the European Union and beyond, paid transactions occur that are not declared to the state for tax, social security and/or labour law purposes when they should be declared. This practice results in reduced tax revenue for governments which hinders social cohesion and growth, lack of social protection and poorer quality working conditions for workers and unfair competition for the legitimate businesses. Therefore, tackling undeclared work has become a core issue on the policy agendas of supra-national agencies and governments. Acknowledging the importance of tackling undeclared work and the scarcity of empirical evaluations of the effectiveness of different available policy approaches, the ‘SHADOWS’ project aimed at addressing this issue. Two distinct approaches have been evaluated, namely the ‘rational economic actor’ approach that tackles undeclared work by ensuring that payoff from undeclared work is outweighed by its costs, and the ‘social actor’ approach grounded in a view that undeclared work arises when tax morale is low. The project advanced knowledge by evaluating not only the effectiveness of using each approach to reduce undeclared work in different contexts, but also by developing new understandings of the most effective overall approach by analysing the interaction effects between deterrents and tax morale, and between vertical trust (between citizens and government) and horizontal trust (between citizens) in various contexts. The research has been conducted under the supervision of Prof Colin Williams at the University of Sheffield.
During the two-year length of the project, Dr Horodnic (the fellow) has achieved the following outcomes:
1. Reviewed the theoretical premises underpinning the rational economic approach and the social economic approach to tackling undeclared work and documented the available evaluations of these two approaches.
2. Empirically analysed the effectiveness of the two approaches in tackling undeclared work as well as their interaction effects using four data bases (i.e. the 2007 and 2013 Eurobarometer surveys on undeclared work conducted in EU27/EU28 and the 2015 GREY surveys conducted in Bulgaria, FYR Macedonia and Croatia with citizens and businesses).
3. Conducted 40 in-depth-interviews for enabling a more nuanced and variegated deeper understanding on how (if) the formal institutions affect citizens` horizontal and vertical trust, their tax morality and whether there is a link with their participation in undeclared work. These interviews were conducted in two different contexts regarding the acceptability of undeclared work and the perceived level of such behaviour (i.e. Romania and the United Kingdom).
4. Enlarged the ‘bank of knowledge’ on the effectiveness of various policies in tackling undeclared work through producing 7 academic papers, 1 working paper, 2 policy briefs and 1 policy report dedicated to the policies approaches toward tackling undeclared work, factors that influence the acceptability of undeclared work amongst citizens and which increase the participation in such behavior. These enabled the designing of policy recommendations drawing on evidence-based findings obtained via a rigorous mix method approach.
5. Raised awareness on undeclared work, the effects of undeclared work, and policy measures available for tackling this phenomenon amongst not only the academic community but also the general public and policy makers. This has been achieved through organizing one workshop, one intra-sectoral conference, one showcase event, one talk and one theatre play targeted at the general public, as well as by participation via papers in three academic conferences and participating in debates at various academic events. In addition, an article dedicated to the general public and business community has been published.
6. Raised awareness on Marie Curie Actions through acting as a Marie Curie Ambassador at three events dedicated to different target groups (undergraduates and master students, PhD students, post-doctoral students and young researchers) as well as through a TV appearance.
7. Undergone rigorous training which facilitated the development of a creative, entrepreneurial and innovative early stage researcher in the field of undeclared work. The training included improving both technical skills (i.e. quantitative and qualitative methods) as well as complementary skills.
1. Reviewed the theoretical premises underpinning the rational economic approach and the social economic approach to tackling undeclared work and documented the available evaluations of these two approaches.
2. Empirically analysed the effectiveness of the two approaches in tackling undeclared work as well as their interaction effects using four data bases (i.e. the 2007 and 2013 Eurobarometer surveys on undeclared work conducted in EU27/EU28 and the 2015 GREY surveys conducted in Bulgaria, FYR Macedonia and Croatia with citizens and businesses).
3. Conducted 40 in-depth-interviews for enabling a more nuanced and variegated deeper understanding on how (if) the formal institutions affect citizens` horizontal and vertical trust, their tax morality and whether there is a link with their participation in undeclared work. These interviews were conducted in two different contexts regarding the acceptability of undeclared work and the perceived level of such behaviour (i.e. Romania and the United Kingdom).
4. Enlarged the ‘bank of knowledge’ on the effectiveness of various policies in tackling undeclared work through producing 7 academic papers, 1 working paper, 2 policy briefs and 1 policy report dedicated to the policies approaches toward tackling undeclared work, factors that influence the acceptability of undeclared work amongst citizens and which increase the participation in such behavior. These enabled the designing of policy recommendations drawing on evidence-based findings obtained via a rigorous mix method approach.
5. Raised awareness on undeclared work, the effects of undeclared work, and policy measures available for tackling this phenomenon amongst not only the academic community but also the general public and policy makers. This has been achieved through organizing one workshop, one intra-sectoral conference, one showcase event, one talk and one theatre play targeted at the general public, as well as by participation via papers in three academic conferences and participating in debates at various academic events. In addition, an article dedicated to the general public and business community has been published.
6. Raised awareness on Marie Curie Actions through acting as a Marie Curie Ambassador at three events dedicated to different target groups (undergraduates and master students, PhD students, post-doctoral students and young researchers) as well as through a TV appearance.
7. Undergone rigorous training which facilitated the development of a creative, entrepreneurial and innovative early stage researcher in the field of undeclared work. The training included improving both technical skills (i.e. quantitative and qualitative methods) as well as complementary skills.
Key empirical findings:
• Participation in undeclared work is strongly correlated with tax morale and with the perception of widespread uncompliant behaviour of other citizens (i.e. low horizontal trust).
• The association between participation in undeclared work and the policy measures related with the social actor approach (i.e. tax morale and horizontal trust) has strengthened between 2007 and 2013, whilst the association between participation in undeclared work and the policy measures related with the rational actor approach (i.e. deterrents) has weakened during the same period.
• When analysing the interaction effects, the findings display firstly, that when tax morale is relatively high the participation in undeclared work is low. Secondly, at high level of tax morale an increased level of deterrents has only a minor impact on the probability of participating in undeclared work and so have the horizontal trust, a lower impact on the probability to engage in undeclared work when tax morale is high.
• The salient influence of tax morality is also underlined by the interview results. The main narratives on accepting and/or participating in undeclared work offer support for the third wave of thought of institutional theory, namely that the formal institutional failures and imperfections influence the tax morale which in turn will influence participation in undeclared work.
• Citizens explain participation in undeclared work as generated mainly due to formal institutional resource misallocations and inefficiencies (i.e. lack of redistributive justice, lack of procedural justice and fairness, and high perceived level of corruption) and formal institutional voids and weaknesses (i.e. lack of worker protection and burdensome regulatory environment). As such, they make a call for policy measures that address these failures, namely preventative measures and measures aimed at improving vertical trust in order to encourage greater self-regulation and a culture of commitment to compliance.
Policy recommendations and impact:
• Overall, in consequence, the evidence from this project suggests that if participation in undeclared work is to be tackled in a more effective manner, the deterrent measures need at the very least to be complemented by preventative measures and measures aimed at fostering trust to encourage voluntary compliance (i.e. increase tax morale).
• This research is relevant for the European Platform Tackling Undeclared Work. Indeed, the two Policy Briefs produced within the ‘SHADOWS’ project have been accepted and included in the virtual library of the European Platform Tackling Undeclared Work on the DG EMPL website and are freely available to policy makers in the EU and beyond.
• As an outreach activity of the project, Dr Horodnic acted as a country expert for the European Commission’s Peer Review on ‘Joint operation groups between public agencies – an effective tool to prevent and tackle undeclared work’ and was invited to present a policy paper at the event.
• Participation in undeclared work is strongly correlated with tax morale and with the perception of widespread uncompliant behaviour of other citizens (i.e. low horizontal trust).
• The association between participation in undeclared work and the policy measures related with the social actor approach (i.e. tax morale and horizontal trust) has strengthened between 2007 and 2013, whilst the association between participation in undeclared work and the policy measures related with the rational actor approach (i.e. deterrents) has weakened during the same period.
• When analysing the interaction effects, the findings display firstly, that when tax morale is relatively high the participation in undeclared work is low. Secondly, at high level of tax morale an increased level of deterrents has only a minor impact on the probability of participating in undeclared work and so have the horizontal trust, a lower impact on the probability to engage in undeclared work when tax morale is high.
• The salient influence of tax morality is also underlined by the interview results. The main narratives on accepting and/or participating in undeclared work offer support for the third wave of thought of institutional theory, namely that the formal institutional failures and imperfections influence the tax morale which in turn will influence participation in undeclared work.
• Citizens explain participation in undeclared work as generated mainly due to formal institutional resource misallocations and inefficiencies (i.e. lack of redistributive justice, lack of procedural justice and fairness, and high perceived level of corruption) and formal institutional voids and weaknesses (i.e. lack of worker protection and burdensome regulatory environment). As such, they make a call for policy measures that address these failures, namely preventative measures and measures aimed at improving vertical trust in order to encourage greater self-regulation and a culture of commitment to compliance.
Policy recommendations and impact:
• Overall, in consequence, the evidence from this project suggests that if participation in undeclared work is to be tackled in a more effective manner, the deterrent measures need at the very least to be complemented by preventative measures and measures aimed at fostering trust to encourage voluntary compliance (i.e. increase tax morale).
• This research is relevant for the European Platform Tackling Undeclared Work. Indeed, the two Policy Briefs produced within the ‘SHADOWS’ project have been accepted and included in the virtual library of the European Platform Tackling Undeclared Work on the DG EMPL website and are freely available to policy makers in the EU and beyond.
• As an outreach activity of the project, Dr Horodnic acted as a country expert for the European Commission’s Peer Review on ‘Joint operation groups between public agencies – an effective tool to prevent and tackle undeclared work’ and was invited to present a policy paper at the event.