Does Trust Prevent Undeclared Work? An Evaluation of the Social Actor Approach

In recent decades, a burgeoning literature has brought out of the shadows the magnitude of the undeclared economy. This reveals that the undeclared economy is a persistent feature of contemporary economies. With the equivalent of 17.9 per cent of GDP not declared to the authorities in the European Union in 2016, undeclared work representing 14.3 per cent of gross value added in the private sector in 2013, and 4 per cent of EU28 citizens conducting undeclared work, tackling the undeclared economy is not some minor issue. Addressing this practice is important. This is not only because of the income lost by governments which could otherwise pay for improving the countries` structural conditions. The undeclared economy also results in poorer quality working conditions for employees and causes unfair competition for legitimate businesses. What measures, therefore, can be used to tackle undeclared work? Surveying the policy measures used by governments, two approaches are identified, namely a rational economic actor approach that aims to tackle undeclared work by ensuring that the cost of undeclared work is higher than its benefits, and a social actor approach which aims to tackle undeclared work by building trust between the citizens and between the citizens and government. The purpose of this policy brief is to review the policies that can help EU Member States reduce the share of undeclared work and focuses on evaluating the effectiveness of the social actor approach.