Evaluating Policy Approaches Towards Tackling Undeclared Work in the Czech Republic

Abstract

This paper evaluates two competing theories for explaining and tackling undeclared work. The dominant rational economic actor approach views undeclared work as arising when the perceived benefits of engaging in undeclared work outweigh the costs, so attention is put on increasing the costs, whilst the more recent social actor approach views undeclared work to result from the lack of citizens’ commitment to compliance and thus attempts to enhance vertical and horizontal trust. To evaluate these theories, 1,024 and 1,000 face-to-face interviews undertaken in 2007 and 2013 with a representative sample in the Czech Republic are analysed. The finding is that higher perceived penalties and risks of detection have no significant impact on the likelihood of conducting undeclared work. In contrast, the level of vertical and horizontal trust have a significant impact on engagement in undeclared work; the higher the vertical and horizontal trust, the lower is the likelihood of participation in undeclared work. The theoretical implication is that this evidence supports a new social actor approach. The policy implication is that the rational economic actor approach of increasing the penalties and risks of detection appears ineffective, and a new policy approach is proposed focused on improving vertical and horizontal trust.