1. Hidden economic activities by companies – overview of perceptions and standpoints of firm representatives
SLAVKO BEZEREDI, Institute of Public Finance, Zagreb
MARIE CURIE IAPP CONFERENCE
UNDECLARED WORK IN SOUTHEAST EUROPE – TOWARDS A MORE SUCCESSFUL FIGHT AGAINST THE PHENOMENON
1 SEPTEMBER 2017

2. Overview Information on the Grey business surveys
Undeclared activities in Southeast Europe (Bulgaria, Croatia and FYR of Macedonia):
(1) Hiring a worker without a contract
(2) Hiring an employee under a contract with “hidden clauses”

3. Representative business survey
Method: Face-to-face interview in working place of the respondent applying TAPI method (Tablet Assisted Personal Interviewing)
Sample size:
conducted during Summer-Fall 2015
Country
Bulgaria
Croatia
FYR of Macedonia
Interviews
456
521
453

4. Who were the representatives of the companies which were interviewed?

5. Estimated share of the hidden economy in SEE (CRO, BUL, FYROM), in % of survey respondents

6. Hiring a worker without a contract, in % of survey respondents

7. Relation between the share of company which always/ in most cases hiring a worker without a contract and the perceived share of others' engagement in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

8. Relation between the share of company which always/ in most cases hiring a worker without a contract and the perceived risk of being detected in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

9. Relation between the share of company which always/ in most cases hiring a worker without a contract and the perceived risk of being detected in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

10. Tax morale
To assess the level of tax morale from the Grey business survey, the following question was used:
“To what extent do you agree with the following statement: Underreporting annual revenue or turnover in order to evade taxes is acceptable.”
This variable is measured on a 10-point Likert scale, where 1 means ‘completely disagree’, 10 means ‘completely agree’
the lower the value of tax morale variable, the higher is the tax morale

11. Relation between the share of company which always/ in most cases hiring a worker without a contract and their estimated tax morale / asymmetry index in SEE (CRO, BUL, FYROM), in % of survey respondents

12. Ordered logit model Dependent variable:
“Hiring a worker without a contract” measured on a four- point scale (1=Never; 2=Sometimes; 3=In most cases; 4=Always)
Control variables:
Sector - in which the observed company is engaged in
Number of employees
Business status - What is the legal status of your business?
Operating period - For how many years has the observed company been trading
Business locality - In what kind of locality does the company/ firm carry out its main activity
Vat registered - Is a company VAT registered?

13. Results of the ordered logit regression
Coefficient (Standard error)
Control variables
YES
Estimated share (RC: 50% or more)
Less than 10%
(0.366)***
10 to 20%
(0.211)***
21 to 30%
(0.199)***
31 to 50%
(0.186)*
Tax morale
0.054 (0.025)**
Detection risk (RC: Less than 30%)
30 to 60%
0.038 (0.160)
More than 60%
(0.164)***
Expected sanction (RC: Nothing serious or a small fine)
A serious fine that would affect the competitiveness of the company
(0.160)
A serious fine that would put the company at risk of insolvency
(0.190)
The company would be forced to cease operations
0.288 (0.311)
Country( RC: FYR of Macedonia)
Bulgaria
(0.181)
Croatia
0.231 (0.175)
Number of observations
965

14. Results of the ordered logit regression (2)
companies from the construction industry are significantly more likely to hire a worker without a contract than companies from all other sectors
Companies which operate in small towns are significantly more likely to hire a worker without a contract than those which operate in big cities or in the capital
small companies (less than 50 employees) are more likely to hire a worker without a contract than others
companies which operate more than 10 years are less likely to hire a worker without a contract than others

15. Hiring an employee under contract with “hidden clauses”in SEE, in % of survey respondents

16. Relation between the share of company which always/ in most cases paying envelope wages and the perceived share of others' engagement in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

17. Relation between the share of company which always/ in most cases hiring an employee under contract with “hidden clauses” and the perceived risk of being detected in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

18. Relation between the share of company which always/ in most cases paying envelope wages and the expected sanction for participation in undeclared activities in SEE (CRO, BUL, FYROM), in % of survey respondents

19. Relation between the share of company which always/ in most cases hiring an employee under contract with “hidden clauses” and their estimated tax morale / asymetry index in SEE (CRO, BUL, FYROM), in % of survey respondents

20. Results of the ordered logit regression
Coefficient (Standard error)
Control variables
YES
Estimated share (RC: 50% or more)
Less than 10%
(0.369)***
10 to 20%
(0.210)***
21 to 30%
(0.200)***
31 to 50%
(0.184)***
Tax morale
0.058 (0.025)**
Detection risk (RC: Less than 30%)
30 to 60%
0.072 (0.150)
More than 60%
(0.173)**
Expected sanction (RC: Nothing serious or a small fine)
A serious fine that would affect the competitiveness of the company
0.070 (0.159)
A serious fine that would put the company at risk of insolvency
(0.190)
The company would be forced to cease operations
(0.304)
Country( RC: FYR of Macedonia)
Bulgaria
0.345 (0.180)*
Croatia
0.560 (0.180)***
Number of observations
942

21. Results of the ordered logit regression (2)
companies from the manufacturing and health industry are less likely to pay envelope wages than companies from all other sectors
companies which operate less than 10 years are more likely to pay envelope wages than others

22. Conclusion
the higher is tax morale, the lower is the likelihood of hiring a worker without a contract/ and hiring an employee under contract with “hidden clauses”
the higher is the perceived likelihood of detection, the lower is the likelihood of hiring a worker without a contract/ and hiring an employee under contract with “hidden clauses”
there is no statistically significant relationship between expected sanction and hiring a worker without a contract/ or hiring an employee under contract with “hidden clauses”

23. Thank you for your attention