IDEAS home Printed from https://ideas.repec.org/a/ids/ijesbu/v28y2016i2-3p339-358.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=76638
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Halla Martin, 2012. "Tax Morale and Compliance Behavior: First Evidence on a Causal Link," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-27, April.
    2. Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
    3. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    4. Merike Kukk & Karsten Staehr, 2014. "Income underreporting by households with business income: evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 257-276, June.
    5. Jaanika Meriküll & Karsten Staehr, 2010. "Unreported Employment and Envelope Wages in Mid-Transition: Comparing Developments and Causes in the Baltic Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(4), pages 637-670, December.
    6. Tālis J. Putniņš & Arnis Sauka, 2011. "Size and determinants of shadow economies in the Baltic States," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(2), pages 5-25, December.
    7. Torgler, Benno & Schneider, Friedrich, 2007. "Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis," Berkeley Olin Program in Law & Economics, Working Paper Series qt26s710z8, Berkeley Olin Program in Law & Economics.
    8. Cummings, Ronald G. & Martinez-Vazquez, Jorge & McKee, Michael & Torgler, Benno, 2009. "Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 447-457, June.
    9. Hug, Simon & Spörri, Franziska, 2011. "Referendums, trust, and tax evasion," European Journal of Political Economy, Elsevier, vol. 27(1), pages 120-131, March.
    10. Olumide TAIWO, 2013. "Employment choice and mobility in multi-sector labour markets: Theoretical model and evidence from Ghana," International Labour Review, International Labour Organization, vol. 152(3-4), pages 469-492, December.
    11. Christopher Winship & Larry Radbill, 1994. "Sampling Weights and Regression Analysis," Sociological Methods & Research, , vol. 23(2), pages 230-257, November.
    12. Colin Williams & Jan Windebank, 2001. "Reconceptualising Paid Informal Exchange: Some Lessons from English Cities," Environment and Planning A, , vol. 33(1), pages 121-140, January.
    13. James Alm & Benno Torgler, 2011. "Do Ethics Matter? Tax Compliance and Morality," Journal of Business Ethics, Springer, vol. 101(4), pages 635-651, July.
    14. Colin C. Williams, 2013. "Evaluating cross-national variations in the extent and nature of informal employment in the European Union," Industrial Relations Journal, Wiley Blackwell, vol. 44(5-6), pages 479-494, November.
    15. Torgler, Benno & Schneider, Friedrich, 2009. "The impact of tax morale and institutional quality on the shadow economy," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 228-245, April.
    16. Vesa Kanniainen & Jenni Pääkkönen, 2010. "Do the catholic and protestant countries differ by their tax morale?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(3), pages 271-290, July.
    17. Benno Torgler, 2007. "Tax Compliance and Tax Morale," Books, Edward Elgar Publishing, number 4096.
    18. Birgit Pfau‐Effinger, 2009. "Varieties of Undeclared Work in European Societies," British Journal of Industrial Relations, London School of Economics, vol. 47(1), pages 79-99, March.
    19. Torgler, Benno, 2006. "The importance of faith: Tax morale and religiosity," Journal of Economic Behavior & Organization, Elsevier, vol. 61(1), pages 81-109, September.
    20. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
    21. Christian Daude & Hamlet Gutierrez & Ángel Melguizo, 2013. "What Drives Tax Morale? A Focus on Emerging Economies," Hacienda Pública Española / Review of Public Economics, IEF, vol. 207(4), pages 9-40, December.
    22. Gary Solon & Steven J. Haider & Jeffrey M. Wooldridge, 2015. "What Are We Weighting For?," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 301-316.
    23. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    24. Kastlunger, Barbara & Lozza, Edoardo & Kirchler, Erich & Schabmann, Alfred, 2013. "Powerful authorities and trusting citizens: The Slippery Slope Framework and tax compliance in Italy," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 36-45.
    25. Torgler, Benno, 2011. "Tax morale and compliance : review of evidence and case studies for Europe," Policy Research Working Paper Series 5922, The World Bank.
    26. Christian Daude & Ángel Melguizo, 2010. "Taxation and More Representation?: On Fiscal Policy, Social Mobility and Democracy in Latin America," OECD Development Centre Working Papers 294, OECD Publishing.
    27. Jorge Martinez-Vazquez & Benno Torgler, 2009. "The Evolution of Tax Morale in Modern Spain," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(1), pages 1-28.
    28. Benno Torgler & Jorge Martinez-Vazquez, 2005. "The Evolution of Tax Morale in Modern Spain (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0521, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    29. Lago-Peñas, Ignacio & Lago-Peñas, Santiago, 2010. "The determinants of tax morale in comparative perspective: Evidence from European countries," European Journal of Political Economy, Elsevier, vol. 26(4), pages 441-453, December.
    30. Russo, Francesco Flaviano, 2013. "Tax morale and tax evasion reports," Economics Letters, Elsevier, vol. 121(1), pages 110-114.
    31. Benno Torgler, 2005. "Tax morale in Latin America," Public Choice, Springer, vol. 122(1), pages 133-157, January.
    32. Torgler, Benno, 2004. "Tax morale in Asian countries," Journal of Asian Economics, Elsevier, vol. 15(2), pages 237-266, April.
    33. Kastlunger, Barbara & Dressler, Stefan G. & Kirchler, Erich & Mittone, Luigi & Voracek, Martin, 2010. "Sex differences in tax compliance: Differentiating between demographic sex, gender-role orientation, and prenatal masculinization (2D:4D)," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 542-552, August.
    34. Juan Molero & Francesc Pujol, 2012. "Walking Inside the Potential Tax Evader’s Mind: Tax Morale Does Matter," Journal of Business Ethics, Springer, vol. 105(2), pages 151-162, January.
    35. Torgler, Benno, 2005. "Tax morale and direct democracy," European Journal of Political Economy, Elsevier, vol. 21(2), pages 525-531, June.
    36. Uma RANI & Patrick BELSER & Martin OELZ & Setareh RANJBAR, 2013. "Minimum wage coverage and compliance in developing countries," International Labour Review, International Labour Organization, vol. 152(3-4), pages 381-410, December.
    37. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-373, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. 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.
    3. 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.
    4. Colin Williams, 2020. "An Institutional Theory of Tax Non- Compliance in Bulgaria: a Tax Morale Approach," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 33-49, March.
    5. Colin C. Williams & Slavko Bezeredi, 2021. "Explaining informal entrepreneurship in Croatia: a social actor approach," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 42(3), pages 348-368.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Colin C. Williams & Ioana A. Horodnic, 2015. "Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(2), pages 81-98.
    2. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    3. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.
    4. Colin C Williams & Ioana Alexandra Horodnic, 2016. "An institutional theory of the informal economy: some lessons from the United Kingdom," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 43(7), pages 722-738, July.
    5. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    6. Williams Colin C. & Horodnic Ioana A., 2015. "Explaining The Prevalence Of The Informal Economy In The Baltics: An Institutional Asymmetry Perspective," European Spatial Research and Policy, Sciendo, vol. 22(2), pages 127-145, December.
    7. Konstantinos Fotiadis & Prodromos Chatzoglou, 2022. "The tax morale of exhausted taxpayers. The case of Greece," Constitutional Political Economy, Springer, vol. 33(3), pages 354-377, September.
    8. Colin C Williams & Ioana A Horodnic, 2017. "Evaluating the policy approaches for tackling undeclared work in the European Union," Environment and Planning C, , vol. 35(5), pages 916-936, August.
    9. Colin C Williams & Ioana A Horodnic, 2016. "Tackling the undeclared economy in the European Union: an evaluation of the tax morale approach," Industrial Relations Journal, Wiley Blackwell, vol. 47(4), pages 322-340, July.
    10. Colin C Williams & Junhong Yang, 2017. "Tackling falsely-declared salaries in Bulgaria: evidence from a 2015 survey," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 333-351, September.
    11. Dagmara Nikulin & Ewa Lechman, 2021. "Shadow Economy in Poland: Results of the Survey," SpringerBriefs in Economics, in: Shadow Economy in Poland, chapter 0, pages 49-65, Springer.
    12. Bejaković Predrag & Bezeredi Slavko, 2019. "Determinants of Tax Morale in Croatia: an Ordered Logit Model," Business Systems Research, Sciendo, vol. 10(2), pages 37-48, September.
    13. Cyan, Musharraf R. & Koumpias, Antonios M. & Martinez-Vazquez, Jorge, 2016. "The determinants of tax morale in Pakistan," Journal of Asian Economics, Elsevier, vol. 47(C), pages 23-34.
    14. Philipp Doerrenberg & Andreas Peichl, 2013. "Progressive taxation and tax morale," Public Choice, Springer, vol. 155(3), pages 293-316, June.
    15. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    16. 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.
    17. Colin C. Williams & Ioana A. Horodnic, 2017. "Evaluating the Illegal Employer Practice of Under-Reporting Employees’ Salaries," British Journal of Industrial Relations, London School of Economics, vol. 55(1), pages 83-111, March.
    18. Tomasz Mickiewicz & Anna Rebmann & Arnis Sauka, 2019. "To Pay or Not to Pay? Business Owners’ Tax Morale: Testing a Neo-Institutional Framework in a Transition Environment," Journal of Business Ethics, Springer, vol. 157(1), pages 75-93, June.
    19. Colin C. Williams & Ioana A. Horodnic, 2015. "Who Participates in the Undeclared Economy in South-Eastern Europe? An Evaluation of the Marginalization Thesis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 13(2), pages 157-175.
    20. Alessandro Cascavilla & Jordi Ripollés & Andrea Morone, 2024. "Tax morale and social capital: An empirical investigation among European citizens," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 95(2), pages 441-476, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijesbu:v:28:y:2016:i:2/3:p:339-358. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=74 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.