Tackling the Propensity towards Undeclared Work: Some Policy Lessons from Croatia
South East European Journal of Economics and Business, Vol. 10, No.1, pp. 18-31, 2015
33 Pages Posted: 10 Jan 2017
Date Written: January 10, 2015
The aim of this paper is to evaluate contrasting policy approaches towards undeclared work. To do so, evidence is reported from 1,000 face-to-face interviews conducted in Croatia during 2013. Logistic regression analysis reveals no association between participation in undeclared work and the perceived level of penalties and risk of detection, but a strong association between participation in undeclared work and the level of tax morality. It thus confirms recent calls for the conventional direct controls approach, which seeks to deter engagement in undeclared work by increasing the penalties and risk of detection, to be replaced by an indirect controls approach which seeks to improve tax morality so as to encourage greater self-regulation and a culture of commitment to compliance. The implications for theory and policy are then discussed.
Keywords: Informal Sector, Tax Morale, Institutional Theory, Tax Evasion, Croatia, South-East Europe
JEL Classification: E26, H26, J46, J48, K34, K42, O17, P37
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