Share:


Rethinking the shadow economy in terms of happiness. Evidence for the European Union Member States

    Monica Violeta Achim Affiliation
    ; Sorin Nicolae Borlea Affiliation
    ; Lucian Vasile Găban Affiliation
    ; Ionut Constantin Cuceu Affiliation

Abstract

This paper’s goal is to highlight how happiness affects the level of shadow economy, by using many control variables within different types of potentially determining factors of shadow economy. Another main contribution consists in the systematic comparison between old and new European Union member states in terms of determinants of shadow economy, including happiness. Our findings consist in the fact that happier people are more likely to act honestly, thus causing a decrease in the size of shadow economy and this result is valid both for old and new European Union countries. In addition, we found that the quality of public governance and the richness of a country are associated with a lower propensity towards shadow economy for all the member states. However, the relationship between public governance and shadow economy are never sig-nificant when the happiness and richness variables vary simultaneously. Our research reveals that the shadow economy in European Union countries is explained in percent of about 62% by richness and happiness of the people. Contrary to our expectations, the fiscal pressure seems not to be a determinant for shadow economy in the European Union space.


First published online 4 December 2016

Keyword : happiness, shadow economy, public governance, fiscal burden, richness

How to Cite
Achim, M. V., Borlea, S. N., Găban, L. V., & Cuceu, I. C. (2018). Rethinking the shadow economy in terms of happiness. Evidence for the European Union Member States. Technological and Economic Development of Economy, 24(1), 199-228. https://doi.org/10.3846/20294913.2016.1209250
Published in Issue
Jan 17, 2018
Abstract Views
1290
PDF Downloads
690
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Abdallah, S.; Michaelson, J.; Shah, S.; Stoll, L.; Marks, N. 2012. The Happy Planet Index: 2012 Report. A global index of sustainable well-being. nef, London.

Abdallah, S.; Thompson, S.; Michaelson, J.; Marks, N.; Steuer, N. 2009. The (un)Happy Planet Index 2.0. Why good lives don’t have to cost the Earth. nef, London.

Alm, J.; Martinez-Vazquez, J.; Torgler, B. 2005. Russian attitudes toward paying taxes – before, during, and after the transition, CREMA Working Paper 2005-27. Center for Research in Economics, Management and the Arts, Basel. http://dx.doi.org/10.1016/s0573-8555(04)68802-x

Alm, J.; Martinez-Vazquez, J.; Schneider, F. 2004. Sizing the problem of the hard-to tax, in Contributions to Economic Analysis, vol. 268. Elsevier, 11–75.

Alm, J.; Torgler, B. 2004. Culture differences and tax morale in the United States and Europe, CREMA Working Paper 2004-14. Center for Research in Economics, Management and the Arts, Basel.

Andrews, M. 2008. The good governance agenda: beyond indicators without theory, Oxford Development Studies 36(4): 379–407. http://dx.doi.org/10.1080/13600810802455120

Agnell, J.; Persson, M. 2000. Tax arbitrage and labour supply, Journal of Public Economics 78(1–2): 3–24. http://dx.doi.org/10.1016/S0047-2727(99)00109-7

Antoci, A.; Russu, P.; Zarri, L. 2014. Tax evasion in a behaviourally heterogeneous society: an evolutionary analysis, Economic Modelling 42: 106–115. http://dx.doi.org/10.1016/j.econmod.2014.06.002

Akay, A.; Bargain, O.; Dolls, M.; Neumann, D.; Peichl, A.; Siegloch, S. 2012. Happy Taxpayers? Income taxation and well-being. Discussion Paper No. 6999, November 2012. IZA, Bonn, Germany.

ATKearney. 2013. The shadow economy in Europe, 2013 [online], [cited November 2014]. Available from Internet: http://www.atkearney.com/documents/10192/1743816/The+Shadow+Economy+in+Europe+2013.pdf

Barone, G.; Mocetti, S. 2009. Tax morale and public spending inefficiency. Temi di discussione (Economic working papers), 732, Bank of Italy, Economic Research and International Relaions Area.

Bergheim, S. 2007. The happy variety of capitalism. Deutsche Bank Research, April 25, 1–22.

Boţa-Avram, C. 2014. Good governance and doing business: evidence from a cross-country survey, Transylvanian Review of Administrative Sciences 41: 27–45.

Brosio, G.; Cassone, A.; Ricciuti, R. 2002. Tax evasion across Italy: rational noncompliance or inadequate civic concern?, Public Choice 112(3–4): 259–273. http://dx.doi.org/10.1023/A:1019985022106

Buziernescu, R.; Antonescu, M. 2007. Paradisurile fiscale international, Finance – Challenge of the Future 6: 178–189.

Chelliah, R. J. 1971. Trends in taxation in developing countries, Staff Papers (International Monetary Fund) 18: 254–331. http://dx.doi.org/10.2307/3866272

Choi, J.; Thum, M. 2005. Corruption and the Shadow Economy, International Economic Review 46(3): 817–836. http://dx.doi.org/10.1111/j.1468-2354.2005.00347.x

Coricelli, G.; Rusconi, E.; Villeval, M. C. 2014. Tax evasion and emotions: an empirical test of reintegrative shaming theory, Journal of Economic Psychology 40: 49–61. http://dx.doi.org/10.1016/j.joep.2012.12.002

Devereux, M. P.; De Mooij, R. A. 2009. Alternative systems of business tax in Europe: an applied analysis of ACE and CBIT reforms. Study for the European Commission, DG Taxation and Customs Union.

Devereux, M. P. ; Griffith, R. 2003. Evaluating tax policy for location decisions, International Tax and Public Finance 10: 107–126. http://dx.doi.org/10.1023/A:1023364421914

Dreher, A.; Schneider, F. 2006. Corruption and the Shadow economy. An empirical analysis. Working paper 2006, CREMA Gellerstrasse 24-CH-4052.

Earnhart, D.; Lizal, L. 2007. Does better environmental performance affect revenues, cost, or both? Evidence from a transition economy. William Davidson Institute Working Paper Number 856.

European Commission. 2014. Shadow economy and undeclared work [online], [cited July 2015]. Available from Internet: http://ec.europa.eu/europe2020/pdf/themes/07_shadow_economy.pdf

Eurostat. 2014. Essential SNA: building the basics. 2014 ed. Luxembourg: Publications Office of the European Union.

Falkner, G.; Treib, O. 2008. Three worlds of compliance or four? The EU-15 Compared to New Member States, Journal of common market studies 46(2): 293–313. http://dx.doi.org/10.1023/A:1023364421914

Friedman, E.; Johnson, S.; Kaufmann, D.; Zoido-Lobaton, P. 2000. Dodging the grabbing hand: the determinants of unofficial activities in 69 countries, Journal of Public Economics 76(3): 459–493. http://dx.doi.org/10.1016/S0047-2727(99)00093-6

Frey, B. S.; Stutzer, A. 2012. The use of happiness research for public policy, Social Choice and Welfare 38(4): 659–674. http://dx.doi.org/10.1007/s00355-011-0629-z

Frey, B. S.; Weck-Hannemann, H. 1984. The hidden economy as an “unobserved” variable, European Economic Review 26(1): 33–53. http://dx.doi.org/10.1016/0014-2921(84)90020-5

Goetz, K. H. 2001. Making sense of post-communist central administration: modernization, Europeanization or Latinization?, Journal of European Public Policy 8(6): 1032–1051. http://dx.doi.org/10.1080/13501760110098332

Goossens, Y.; Mäkipää, A.; Schepelmann, P.; Van de Sand, I.; Kuhndt, M.; Herrndorf, M. 2007. Alternative progress indicators to gross domestic product (GDP) as a means towards sustainable development. European Parliament, Policy Department A: Economic and Scientific Policy, Brussels.

Grabbe, H. 2001. How does Europeanization affect CEE governance? Conditionality, diffusion and diversity, Journal of European Public Policy 8(6): 1013–1031. http://dx.doi.org/10.1080/13501760110098323

Halla, M. 2010. The link between the intrinsic motivation to comply and compliance behavior: a critical appraisal of existing evidence. IZA Discussion Paper.

Happy Planet Index (HPI) [online]. 2012 [cited November 2014]. Available from Internet: http://www.happyplanetindex.org/data/

Harbaugh, W. T.; Mayr, U.; Bughart, D. R. 2007. Neural responses to taxation and voluntary giving reveal motives for charitable donations, Science 316(5831): 1622–1625. http://dx.doi.org/10.1126/science.1140738

Heritage Foundation. 2015. Index of Economic Freedom. Washington DC.

Johns, H.; Ormerod, P. 2007. Happiness, economics and public policy. The Institute of Economic Affairs, London.

Johnson, S.; Kaufmann, D.; Sleifer, A. 1997. The unofficial economy in transition, Brooking Papers on Economic Activity 2: 159–221. http://dx.doi.org/10.2307/2534688

Kahneman, D.; Krueger, A. B.; Schkade, D.; Schwarz, N.; Stone, A. A. 2006. Would you be happier if you were richer? A focusing illusion, Science 312: 1908–1910. http://dx.doi.org/10.1126/science.1129688

Kaufmann, D.; Kraay, A.; Mastruzzi, M. 2010. The worldwide governance indicators methodology and analytical issues. Policy Research Working Paper 530, The World Bank Development Research Group Macroeconomics and Growth Team, 1–28.

Kawano, L.; Slemrod, J. 2014. How do corporate tax bases change when corporate tax rates change? With implications for the tax rate elasticity of corporate tax revenues [online], [cited November 2014]. Available from Internet: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Events/conferences/2014/iipf_summer_school/kawano-slemrod.pdf

Kirchler, E. 2007. The economic psychology of tax behavior. Cambridge, England: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511628238

Kogler, C.; Batrancea, L.; Nichita, A.; Pantya, J.; Belianin, A. 2013. Trust and power as determinants of tax compliance: testing the assumptions of the slippery slope framework in Austria, Hungary, Romania and Russia, Journal of Economic Psychology 34: 169–180. http://dx.doi.org/10.1016/j.joep.2012.09.010

Lubian, D.; Zarri, L. 2011. Happiness and tax morale: an empirical analysis, Journal of Economic Behavior & Organization 80(1): 223–243. http://dx.doi.org/10.1016/j.jebo.2011.03.009

Mahadeo, J. D.; Soobaroyen, T.; Hanuman, V. O. 2012. Board composition and financial performance: uncovering the effects of diversity in an emerging economy, Journal of Business Ethics 105(3): 375–388. http://dx.doi.org/10.1007/s10551-011-0973-z

Mara, E. R.; Inceu, A.; Cuceu, I.; Achim, M. V. 2009. The impact of economic crisis on the fiscal revenues, Annals of Faculty of Economics 3(1): 252–257.

Mocan, N. 2008. What determines corruption? International evidence from micro data, Economic Inquiry 46(4): 493–510. http://dx.doi.org/10.1111/j.1465-7295.2007.00107.x

Nastav, B.; Bojnec, Š. 2008. Small business and the shadow economy, Czech Journal of Economics and Finance 58(1–2): 68–80.

OECD. 2012. Communication from the Commission to the European Parliament and the council on concrete ways to reinforce the fight against tax fraud and tax evasion including in relation to third countries. COM/2012/0351.

OECD. 2009. Overview of OECD’s work on international tax evasion.

OECD. 2008. Non-observed economy in national accounts. Survey Country/Practices. United Nations.

OECD. 2002. Measuring the Non-observed Economy-A Handbook.

Orviska, M.; Hudson, J. 2003. Tax evasion, civic duty and the law abiding citizen, European Journal of Political Economy 19(1): 83–102. http://dx.doi.org/10.1016/S0176-2680(02)00131-3

Oswald, A. J. 2010. Emotional prosperity and the Stiglitz commission. IZA Discussion Paper No. 5390, December.

Pickhardt, M.; Prinz, A. 2014. Behavioral dynamics of tax evasion – a survey, Journal of Economic Psychology 40: 1–19. http://dx.doi.org/10.1016/j.joep.2013.08.006

Prinz, A.; Muehlbacher, S.; Kirchler, E. 2014.The slippery slope framework on tax compliance: an at-tempt to formalization, Journal of Economic Psychology 40: 20–34. http://dx.doi.org/10.1016/j.joep.2013.04.004

Putniņš, T. J.; Sauka, A. 2011. Size and determinants of shadow economies in the Baltic States, Baltic Journal of Economics 11(2): 5–25. http://dx.doi.org/10.1080/1406099X.2011.10840498

Richardson, G. 2006. Determinants of tax evasion: a cross-country investigation, Journal of International Accounting, Auditing and Taxation 15(2): 150–169. http://dx.doi.org/10.1016/j.intaccaudtax.2006.08.005

Robinson, J. P.; Shaver, L. S. 1991. Wrightsman: measures of personality. New York: Academic Press.

Roubal, O.; Havliček, K. 2013. The role of happiness in the economic environment, Journal of Social Sciences 2(2): 15–23.

Schmölders, G. 1960. Fiscal psychology: a new branch of public finance, National Tax Journal 12: 340–345.

Schneider, F.; Raczkowski, K.; Mróz, B. 2015. Shadow economy and tax evasion in the EU, Journal of Money Laundering Control 18(1): 34–51. http://dx.doi.org/10.1108/JMLC-09-2014-0027

Schneider, F. 2013. Size and development of the shadow economy of 31 European and 5 other OECD coun-tries from 2003 to 2013: a further decline [online], [cited November 2014]. Available from Interent: http://www.econ.jku.at/members/schneider/files/publications/2013/shadeceurope31_jan2013.pdf

Schneider, F. 2011. The shadow economy and shadow economy labor force: what do we (not) know?. IZA Discussion paper, No. 5769.

Schneider, F.; Buehn, A.; Montenegro, C. E. 2010. New estimates for the shadow economies all over the world, International Economic Journal 24(4): 443–461. http://dx.doi.org/10.1080/10168737.2010.525974

Schneider, F. 2005. Shadow economies of 145 countries all over the world: estimation results of the period 1999 to 2003. Discussion Paper. Linz.

Schneider, F.; Klinglmair, R. 2004. Shadow economies around the world: what do we know? Working Paper No. 0403, Universität Linz.

Stiglitz, J. E.; Sen, A.; Fitoussi, J.-P. 2010. Mismeasuring our lives: why GDP doesn’t add up. Commission on the Measurement of Economic Performance and Social Progress, New Press.

Tekeli, R. 2011. The determinants of tax morale: the effects of cultural differences and politics. PRI Discussion Paper Series (No.11A-10), Policy Research Institute, 1–77.

Thießen, U. 2010. The shadow economy in international comparison: options for economic policy derived from an OECD panel analysis. Discussion Papers, Deutsches Institut für Wirtschaftsforschung, 1–72.

Torgler, B.; Schneider, F.; Schaltegger, C. A. 2010. Local autonomy, tax morale and the shadow economy, Public Choice 144: 293–321. http://dx.doi.org/10.1007/s11127-009-9520-1

Torgler, B. 2008. What do we know about tax fraud? An overview of recent developments, Social Research 75(4): 1239–1270.

Torgler, B.; Schneider, F. 2007. The impact of tax morale and institutional quality on the shadow economy. IZA Discussion Paper.

Torgler, B. Schneider, F. 2009. The impact of tax morale and institutional quality on the shadow economy, Journal of Economic Psychology 30(2): 228–245. https://doi.org/10.1016/j.joep.2008.08.004

Torgler, B. 2005. Tax morale in Latin America, Public Choice 122: 133–157. http://dx.doi.org/10.1007/s11127-005-5790-4

Torgler, B. 2004. Tax morale in Asian Countries, Journal of Asian Economics 15: 237–266. http://dx.doi.org/10.1016/j.asieco.2004.02.001

Torgler,B. 2002. The economic analysis of “creative” compliance. WWZ-Discussion Paper 02/04, Basel, WWZ.

Tosun, J. 2014. Absorption of regional funds: a comparative analysis, Journal of Common Market Studies 52(2): 371–387. http://dx.doi.org/10.1111/jcms.12088

Voicu, C. 2012. Underground economy nature – conceptual status, Theoretical and Applied Economics XIX 3(568): 109–120.

Weber Abramo, C. 2005. How far Perceptions go. Transparency Brazil Working Paper, The World Bank, Whashington DC.

Weck, H. 1983. Schattenwirtschaft: Eine Möglichkeit zur Einschränkung der öffentlichen Verwaltung? Eine ökonomische Analyse. Finanzwissenschaftliche Schriften 22. Bern: Lang.

World Bank. 2013. Worldwide governance indicators 2013. [online], [cited September 2014]. Available from Internet: www.govindicators.org