Tax evasion, illicit work and social security fraud are quite common. Most governments try to fight this deviant behavior by punitive measures. But recent empirical data for Germany reveals that, in contrast to standard economic theory, this line of approach is expensive, inefficient and unsuccessful. Instead, governments have to change institutions (e.g., tax system) and regulations. The regression analysis shows that the increasing burden of taxation and social security contributions, along with regulations and the poor quality of institutions are the elementary causes for the rise of the shadow economy, especially in OECD countries. For transition countries, multivariate analysis provides evidence for the significant influence of corruption, economic freedom and the quality of institutions upon the size of their shadow economies.
The
causes, effects and problems generated by the increasing shadow economic activities
are extensively and controversially discussed in OECD (Organizations for Economic
Co-operation and Development) and EU-Accession countries. The dramatically rising
unemployment (e.g., in the EU), financing problems of public expenditure, as well
as the the rising vexation and disappointment with the economic and social policies
have triggered broad initiatives by the EU Commission and the EU Parliament, along
with initiatives on national levels.
But
they face a dilemma. While the evasion of taxes by the wealthy leads to widespread
public indignation, illicit workers are not much criticized - although, as some
politicians argue, they behave in an antisocial manner by causing unemployment
and social injustice. This opinion is broadly shared with regard to social fraud,
illegal employment and extensive tax evasion. But then, what about part time illicit
work in the evenings ("moonlighting"), which roughly half of the population
of Germany, Norway, Great Britain and Sweden would tolerate or even take advantage
of, given an opportunity ? Could additional sanctions and control combined with
enhanced regulation become the ultimate solution to fight illicit work, or is
there any other option to deal with undeclared work? |
