Tackling Undeclared Work in the European Union

Abstract

Undeclared work represents a persistent feature of contemporary economies and results in lost public revenue, lack of worker protection and unfair competition for legitimate businesses. Conventionally, undeclared work has been viewed as an individual criminal act, which is solved by governments increasing the penalties and risks of detection in order to discourage participation. This, however, only deals with the outcome (i.e., participation in undeclared work) and does not address the drivers of this behaviour. This report explores the formal institutional failures which make undeclared work an acceptable behaviour in the eyes of citizens and, consequently, result in high participation in undeclared work. Addressing these institutional failures is important in order to tackle the determinants of undeclared work. This report investigates what policy measures are effective by exploring in turn the views of citizens, businesses and policy makers. The finding is that, despite the increasing importance attributed by the governments to deterrent measures, both citizens and businesses are influenced by other factors when deciding whether to participate in undeclared work. Thus, to tackle undeclared work in a more effective manner, preventative measures and measures aimed at fostering trust need to complement deterrent measures.

Keywords: undeclared work; rational economic actor approach; social actor approach; tax morale; vertical trust; horizontal trust