Regulation of informal employment in a transition economy


  • Н. І. Варга Ужгородський національний університет
  • Д. М. Афанасьєв Ужгородський національний університет
Keywords: non-interference, de-regulation, eradication, displacement of informal employment, formal economy, level of trust

Abstract

The regulation of informal employment requires in-depth analysis. The aim of this article is to provide a framework for understanding the approaches for tackling undeclared work. The main directions of the regulatory influence of the state, such as non-mixing, de-regulation, eradication and transfer of informal employment into the formal economy. It is shown that post-Soviet society predominates only direct punitive control. Akin to many other contemporary societal problems, tackling the undeclared economy has perhaps previously been conceptually framed as a ‘tame’ problem (i.e., a problem that is complicated but easily solvable, often with a discrete response that can be replicated anywhere). Here however, the undeclared economy is reframed as a ‘wicked’ problem which is complex, rather than complicated, and the outcome of a number of inter-related drivers, each of which if addressed has unforeseen and unintentional knock-on effects. Responsibility for tackling the problem moreover, stretches across multiple stakeholders and profound behavioural changes across both citizens and stakeholders are required to address the issue. Such wicked problems therefore, have to employ ‘clumsy’ approaches rather than ‘elegant’ solutions. However, indirect control measures that change formal and informal institutions, although necessary, are insufficient on their own to tackle undeclared work. Given that undeclared work is a wicked problem with multiple drivers, a multi-pronged approach is required that uses both direct and indirect controls. For example, governments might seek to change the culture of government departments towards a more customer-oriented approach and introduce public campaigns to elicit greater commitment to tax morality, whilst simplifying regulatory compliance and introducing incentives (amnesties, tax deductions) to enable undeclared work to move into the declared realm. At the same time, and in relation to those who fail to comply, they may also pursue improvements in the probability of detection and tougher sanctions for those subsequently caught. Voluntary compliance arises where there is trust in the authorities. When there is no trust in the authorities, and the authorities have no authority, no means are sufficient to influence informal employment. For qualitative regulation and influence on it, it is necessary to increase either the powers of the authorities or the trust in the authorities. In the approach of direct control, emphasis is placed on increasing the authority of the authorities, whereas in the indirect control approach the emphasis is on increasing confidence in the authorities. In practice, these approaches are not mutually exclusive, on the contrary, you can use both to enhance their effectiveness.

References

1. Ahmed, E., & Braithwaite, V. (2005). Understanding small business taxpayers: issues of deterrence, tax morale, fairness and work practice. International Small Business Journal, 23 (5), 539-68.
2. Bentham, J. (1983). Principles of penal law, reprinted in J.H. Burton (ed.). The works of Jeremy Bentham. Philadelphia: Lea and Blanchard.
3. Beccaria, C. (1986). On crimes and punishment. Indianapolis: Hackett Publishers.
4. Becker, G.S. Crime and punishment: an econometric approach. Journal of Political Economy, 76 (1), 169-217.
5. Williams, C.C. (2004). Cash-in-Hand Work: the underground sector and the hidden economy of favours. Palgrave Macmillan, Basingstoke.
6. White, R. (2010). Williams C. Re-thinking monetary exchange: some lessons from England. Review of Social Economy, 68 (3), 317-38.
7. De Soto, H. (1989). The Other Path: the economic answer to terrorism. London: Harper and Row.
8. Becker, K.F. (2004). The Informal Economy. Stockholm: Swedish International Development Agency, 2004
9. Kempson, E. (1996). Life on a Low Income. York: York Publishing Services.
10. Williams, C.C. (2013). Tackling Europe’s informal economy: a critical evaluation of the neo-liberal de-regulatory perspective. Journal of Contemporary European Research, 9 (3), 261-79.
11. Kus, B. (2014). The informal road to markets: neoliberal reforms, private entrepreneurship and the informal economy in Turkey. International Journal of Social Economics, 41 (4), 278-93.
12. Richardson, M., & Sawyer, A. (2001). A taxonomy of the tax compliance literature: further findings, problems and prospects. Australian Tax Forum, 16 (2), 137-320.
13. Bergman, M., & Nevarez, A. (2006). Do audits enhance compliance? An empirical assessment of VAT enforcement. National Tax Journal, 59 (4), 817-32.
14. Murphy, K. (2005). Regulating more effectively: the relationship between procedural justice, legitimacy and tax non-compliance. Journal of Law and Society, 32 (4), 562-89.
15. Williams, C.C. (2014). The Informal Economy and Poverty: evidence and policy review. York: Report prepared for Joseph Rowntree Foundation.
16. Portes, A., Castells, M., & Benton, L. (1996). The Informal Economy: studies in advanced and less developing countries. Baltimore: John Hopkins University Press.
17. Kempson, E. (1996). Life on a Low Income. York: York Publishing Services.
18. Williams, C.C., Windebank, J., Baric, M., & Nadin, S. (2013). Public policy innovations: the case of undeclared work. Management Decision, 51 (6), 161-75.
Published
2019-06-26
How to Cite
Варга, Н., & Афанасьєв, Д. (2019). Regulation of informal employment in a transition economy. Grani, 22(4), 100-106. https://doi.org/10.15421/171948
Section
Статті