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An evaluation of the shadow economy in Baltic states: a tax morale perspective

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  • Ioana Alexandra Horodnic
  • Colin C. Williams

Abstract

To explain the shadow economy in the Baltic states of Estonia, Lithuania and Latvia, this paper evaluates the relationship between the shadow economy and tax morale. Viewing tax morale as a measure of the symmetry between the codified laws and regulations of formal institutions (state morality) and the unwritten socially shared rules of informal institutions (civic morality), the proposition is that the lower the tax morale (i.e., the greater the asymmetry between state morality and civic morality), the greater is the propensity to participate in the shadow economy. To evaluate this, a 2013 survey is reported involving 3,036 face-to-face interviews in these three Baltic nations. Using ordered logistic regression analysis, the finding is that the lower is the tax morale of individuals, population groups and countries, the greater is the propensity to participate in the shadow economy. The paper then explores the implications for theorising and tackling the shadow economy.

Suggested Citation

  • Ioana Alexandra Horodnic & Colin C. Williams, 2016. "An evaluation of the shadow economy in Baltic states: a tax morale perspective," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 28(2/3), pages 339-358.
  • Handle: RePEc:ids:ijesbu:v:28:y:2016:i:2/3:p:339-358
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    References listed on IDEAS

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    Cited by:

    1. Colin C WILLIAMS & Slavko BEZEREDI, 2018. "Explaining informal entrepreneurship in South-East Europe: a tax morale approach," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 9, pages 47-68, December.
    2. Colin C. Williams & Slavko Bezeredi, 2018. "An Institutional Theory Of Informal Entrepreneurship: Some Lessons From Fyr Macedonia," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 23(03), pages 1-22, September.

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