Tackling undeclared self-employment in south-east europe: From deterrents to preventative policy measures

Abstract

This paper evaluates two contrasting policy approaches for tackling those working on an own-account basis who do not declare all their paid activities to the authorities for tax, social security and/or labour law purposes. The conventional deterrence approach, based on a rational economic actor view, has sought to raise the costs of engaging in undeclared work by increasing the expected sanctions and risk of detection. Recently, an alternative preventative approach has emerged viewing participants more as social actors operating in the undeclared economy when there is a lack of vertical trust (in government) and horizontal trust (in others to operate legitimately). Consequently, this seeks to improve vertical and horizontal trust in order to elicit voluntary compliance. To evaluate the effectiveness of these contrasting policy approaches in tackling undeclared self-employment, evidence is reported from a 2019 Eurobarometer survey in seven South-East European countries (Bulgaria, Croatia, Cyprus, Greece, Hungary, Romania and Slovenia). This reveals that the likelihood of participation in undeclared self-employment is not significantly associated with the deterrent measures of increasing the perceived sanctions and risk of detection but is significantly associated with the preventative measures of improving vertical and horizontal trust. The implications for theorising and tackling undeclared self-employment are discussed.