Evaluating competing perspectives towards undeclared work: some lessons from Bulgaria

ABSTRACT

When explaining and tackling the undeclared economy in Central and Eastern Europe, participants have been conventionally viewed as rational economic actors. They engage in undeclared work when the benefits outweigh the costs. Participation is thus deterred by increasing the sanctions and/or probability of being caught. Recently, however, an alternative social actor approach has emerged which views participants as engaging in undeclared work when their norms, values and beliefs (i.e. citizen morale) do not align with laws and regulations (i.e. state morale). Here, therefore, initiatives to develop greater symmetry between civic and state morale are pursued. To evaluate the validity and effectiveness of these competing explanations and policy approaches, 2,004 face-to-face interviews conducted in Bulgaria in late 2015 are reported. Logit marginal effects regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong significant association with the level of asymmetry between citizen and state morale; the greater the asymmetry, the higher is the likelihood of participation in undeclared work. The paper concludes by discussing the implications for explaining and tackling undeclared work.

KEYWORDS:

• Informal sector
• tax morale
• tax evasion
• institutional theory
• Bulgaria

Acknowledgments

The authors would like to thank the funders for providing the financial support to enable this to be written. The usual disclaimers apply.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This paper is an output of the European Commission’s Framework 7 Industry-Academia Partnerships Programme (IAPP) grant no. 611259 entitled “Out of the shadows: developing capacities and capabilities for tackling undeclared work in Bulgaria, Croatia and FYR Macedonia” (GREY).