Round Table: Tackling Undeclared Work and Hidden Economy in Southeast Europe: Improving Governance and Prosperity

RAS researcher, Valentina Dimulescu, attended SELDI’s roundtable on tackling Undeclared Work and Hidden Economy in Southeast Europe which took place on 13 December 2016 in Belgrade, Serbia.

The existence of undeclared work, hidden economy and corruption have been identified by the European Commission and other international and local agencies as a major barrier to enabling embedded economic prosperity in SEE. In a recent study, the SELDI initiative and University of Sheffield Management School showed that hidden economy in SEE remains wide-spread; it perpetuates informality, which is linked to corruption, and denotes a substantial gap between formal and informal institutions. This gap is due both to underdeveloped formal market institutions, and also to the lack of coherent enforcement of rules, often related to corruption. The sustained high-levels of the hidden economy in SEE, low trust in public institutions and, in some cases, ambiguous national identity, has resulted in changes in tax morale and lower revenues for governments.

Prof. Colin Williams, Sheffield University Management School, University of Sheffield underlined the importance of the citizens’ perceptions of the quality of public services received for their taxes. He stressed that state failure leads to low tax morale, and the solution should be sought in promoting good governance and helping institutions be more effective. He also argued that punitive measures have short-term effect and can create negative tax morale in the long term. For that reason positive enforcement, tax fairness and information campaigns should be applied to achieve structural reform – the key to success is changing the work of the formal institutions towards a service-oriented approach.

Dr. Peter Rodgers, Lecturer in Strategy and International Business, Sheffield University Management School further explained the benefits from the transition from compliance to a culture of commitment. He recommended the use of information campaigns targeting young people, changing norms, values and believes, as well as the approach of demonstrating that the vast majority of the population is compliant, highlighting the public services that result from tax earnings. He also recommended that CSOs, including SELDI, pressure formal institutions to change, improve tax fairness, as well as promote early intervention (e.g. tax education programmes).

All participants agreed that working in the hidden economy in SEE is often socially embedded, culturally and educationally predetermined, and not simply a matter of a rational choice maximising personal benefit. Hence, an effective anti-hidden economy policy should not be purely economic or fiscal, but a comprehensive social policy.

More information on the agenda and speakers can be found here

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