Tackling Undeclared Work in Southeast Europe: Knowledge-Informed Policy Responses

Abstract

Undeclared work is socially accepted and widely practiced in Bulgaria, Croatia, and the FYR of Macedonia. More than 1 in 5 adults in these countries acknowledge that they have bought goods and services on the undeclared economy in the prior year. More than 1 in 12 report that they have undertaken undeclared work, and more than 1 in 10 declared employees report that they receive from their employer in addition to their declared salary an additional undeclared ‘envelope’ wage. But undeclared work differs across and within the three countries. For every one working undeclared due to their exclusion from the formal economy, there are three that have chosen to exit the formal economy, and this varies across countries. Policy makers need to prioritise policy measures to improve vertical (in institutions) and horizontal (among people) trust, complementing measures to improve detection and deterrence.

Keywords: informal economy, shadow economy, tax evasion, labor economics, informal sector

JEL Classification: H26, J46, J48, K34, K42, O17, P37