Evaluating tax evasion in the European Union: a case study of the prevalence and character of ‘envelope wage’ payments
In the current climate of economic crisis, European governments are trying to raise revenue via various means such as fighting tax evasion. This paper evaluates a form of tax evasion in Europe that has so far received little attention. This is the illegitimate wage practice used by legitimate businesses whereby they pay their formal employees two separate wages, an official wage that is declared to the state for tax and social security purposes and an unofficial ‘envelope’ wage which is not declared and allows employers to avoid paying their full social insurance and tax liabilities. Examining a data-base composed of 26,659 face-to-face interviews conducted in the 27 member states of the European Union, using unordered and ordered discrete models as well as interval regression, we provide evidence of the factors that significantly impact on the propensity to receive envelope wages and the amounts received. We control for relevant socio- economic and other characteristics of individuals in our estimations. There is an interesting geographical variation in the incidence of ‘envelope wages’ in Europe. Most workers receiving envelope wages are concentrated in South-Easter and East-Central Europe while few of them are found in Nordic Countries and Continental Europe including the UK and Ireland. Arguably, this is a reflection of heterogeneity in social norms, attitudes towards the state and income inequality across countries. Our estimates corroborate this geographical heterogeneity and identify other significant correlates affecting the probability of participating in ‘under-declared’ activity, namely gender, age, sector of employment, firm size, occupation and household income. We also find perception variables about the scale of evasion to be significant predictors of the probability of evasion.
|Date of creation:||Jun 2011|
|Date of revision:||Jun 2011|
|Contact details of provider:|| Postal: |
Phone: +44 (0)116 252 2887
Fax: +44 (0)116 252 2908
Web page: http://www2.le.ac.uk/departments/economics
More information through EDIRC
|Order Information:|| Web: http://www2.le.ac.uk/departments/economics/research/discussion-papers Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan S. Feinstein, 1991. "An Econometric Analysis of Income Tax Evasion and its Detection," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 14-35, Spring.
- Lewis, Alan, 1979. "An Empirical Assessment of Tax Mentality," Public Finance = Finances publiques, , vol. 34(2), pages 245-57.
- Friedrich Schneider & Robert Klinglmair, 2004.
"Shadow economies around the world: what do we know?,"
Economics working papers
2004-03, Department of Economics, Johannes Kepler University Linz, Austria.
- Schneider, Friedrich & Klinglmair, Robert, 2004. "Shadow Economies around the World: What Do We Know?," IZA Discussion Papers 1043, Institute for the Study of Labor (IZA).
- Friedrich Schneider & Robert Klinglmair, 2004. "Shadow Economies Around the World: What Do We Know?," CREMA Working Paper Series 2004-03, Center for Research in Economics, Management and the Arts (CREMA).
- Friedrich Schneider & Robert Klinglmair, 2004. "Shadow Economies around the World: What Do We Know?," CESifo Working Paper Series 1167, CESifo Group Munich.
- Gary S. Becker, 1974.
"Crime and Punishment: An Economic Approach,"
in: Essays in the Economics of Crime and Punishment, pages 1-54
National Bureau of Economic Research, Inc.
- HINDRIKS, Jean & KEEN, Michael & MUTHOO, Abhinay, .
"Corruption, extortion and evasion,"
CORE Discussion Papers RP
-1671, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hindriks, J. & Keen, M. & Muthoo, A., 1996. "Corruption, Extortion and Evasion," Papers 179, Notre-Dame de la Paix, Sciences Economiques et Sociales.
- Jean Hindriks, Michael Keen and Abhinay Muthoo, . "Corruption, Extortion and Evasion," Economics Discussion Papers 470, University of Essex, Department of Economics.
- Hindriks, J. & Keen, M. & Muthoo, A., 1998. "Corruption, Extortion and Evasion," Discussion Papers 9809, Exeter University, Department of Economics.
- Hindriks, Jean & Myles, Gareth D., 2013.
"Intermediate Public Economics,"
MIT Press Books,
The MIT Press,
edition 2, volume 1, number 0262018691, June.
- James Andreoni & Brian Erard & Jonathan Feinstein, 1998.
Journal of Economic Literature,
American Economic Association, vol. 36(2), pages 818-860, June.
- Mihails Hazans, 2005. "Latvia: Working Too Hard?," Labor and Demography 0506008, EconWPA.
- Alm, James & Torgler, Benno, 2006.
"Culture differences and tax morale in the United States and in Europe,"
Journal of Economic Psychology,
Elsevier, vol. 27(2), pages 224-246, April.
- James Alm & Benno Torgler, 2004. "Culture Differences and Tax Morale in the United States and in Europe," CREMA Working Paper Series 2004-14, Center for Research in Economics, Management and the Arts (CREMA).
- 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 363-73, August.
- Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
- Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
- 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.
- Colin. C. Williams, 2008. "Illegitimate wage practices in Eastern Europe: - The case of 'envelope wages'," Journal for East European Management Studies, Rainer Hampp Verlag, vol. 13(3), pages 253 - 270.
- John Round & Colin C. Williams & Peter Rodgers, 2008. "Corruption in the post-Soviet workplace: the experiences of recent graduates in contemporary Ukraine," Work, Employment & Society, British Sociological Association, vol. 22(1), pages 149-166, March.
- Friedrich Schneider, 2004.
"Shadow Economies around the World: What do we really know?,"
IAW Discussion Papers
16, Institut für Angewandte Wirtschaftsforschung (IAW).
- Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
- Monder Ram, 2002. "Ethnic Minority Enterprise in its Urban Context: South Asian Restuarants in Birmingham," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 26(1), pages 24-40, 03.
- Colin C. Williams & John Round, 2007. "Beyond Negative Depictions of Informal Employment: Some Lessons from Moscow," Urban Studies, Urban Studies Journal Limited, vol. 44(12), pages 2321-2338, November.
- Colin C. Williams & Sara Nadin, 2012. "Tackling Undeclared Work in the European Union," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(2), pages 20-25, 07.
- Rainer Neef, 2002. "Aspects of the Informal Economy in a Transforming Country: The Case of Romania," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 26(2), pages 299-322, 06.
When requesting a correction, please mention this item's handle: RePEc:lec:leecon:11/33. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mrs. Alexandra Mazzuoccolo)
If references are entirely missing, you can add them using this form.