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Explaining participation in the undeclared economy in Central and Eastern Europe: a demand-side approach

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  • Colin C. Williams
  • Ioana A. Horodnic

Abstract

To explain participation in the undeclared economy, the conventional supply-side approach evaluates the reasons people work in this sphere. This article, for the first time in Central and Eastern Europe, explains the undeclared economy using a demand-side approach which evaluates citizens’ motives for purchasing undeclared goods and services. Here, three potential explanations for purchasing undeclared goods and services, grounded in rational economic actor, social actor and institutional imperfections theoretical perspectives, are evaluated. Reporting data from 11,131 face-to-face interviews conducted in 11 Central and Eastern European countries in 2013, the main finding is that all three explanations are used by consumers, demonstrating the need for a synthesis of these approaches. A multinomial regression analysis identifies the specific groups variously using the undeclared economy to obtain a lower price, for social or redistributive rationales, or due to formal institutional imperfections. The implications for theorising and tackling the undeclared economy are then explored.

Suggested Citation

  • Colin C. Williams & Ioana A. Horodnic, 2017. "Explaining participation in the undeclared economy in Central and Eastern Europe: a demand-side approach," Post-Communist Economies, Taylor & Francis Journals, vol. 29(3), pages 297-312, July.
  • Handle: RePEc:taf:pocoec:v:29:y:2017:i:3:p:297-312
    DOI: 10.1080/14631377.2017.1335453
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    References listed on IDEAS

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    1. Richard White & Colin Williams, 2010. "Re-thinking Monetary Exchange: Some Lessons from England," Review of Social Economy, Taylor & Francis Journals, vol. 68(3), pages 317-338.
    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. 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.
    4. Arthur T. Denzau & Douglass C. North, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31, February.
    5. Colin C. Williams & Abbi M. Kedir, 2017. "Starting-up unregistered and firm performance in Turkey," International Entrepreneurship and Management Journal, Springer, vol. 13(3), pages 797-817, September.
    6. Colin C. Williams & Ioana Horodnic, 2015. "Marginalisation and participation in the informal economy in Central and Eastern European nations," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 153-169, June.
    7. 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.
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    10. 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.
    11. Colin C. Williams, 2006. "How much for cash? Tackling the cash-in-hand ethos in the household services sector," The Service Industries Journal, Taylor & Francis Journals, vol. 26(5), pages 479-492, July.
    12. Theresa Aldridge & Jane Tooke & Roger Lee & Andrew Leyshon & Nigel Thrift & Colin Williams, 2001. "Recasting Work: The Example of Local Exchange Trading Schemes," Work, Employment & Society, British Sociological Association, vol. 15(3), pages 565-579, September.
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    16. Williams, Colin C. & Shahid, Muhammad S. & Martínez, Alvaro, 2016. "Determinants of the Level of Informality of Informal Micro-Enterprises: Some Evidence from the City of Lahore, Pakistan," World Development, Elsevier, vol. 84(C), pages 312-325.
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    18. Williams, Colin C. & Martinez-Perez, Alvaro, 2014. "Why do consumers purchase goods and services in the informal economy?," Journal of Business Research, Elsevier, vol. 67(5), pages 802-806.
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