In recent years, participants in
the informal economy have started to be viewed less as rational economic
actors who engage in the informal economy when the pay-off is greater
than the expected cost of being caught and punished, and more as social
actors who engage when their tax morale (i.e., motivation to pay taxes)
is low. To evaluate this new social actor approach and the implications
for tackling the informal economy, this paper reports evidence from
41,689 face-to-face interviews conducted across the European Union.
Multilevel logistic regression analysis reveals a strong association
between participation in the informal economy and the level of tax
morale. Finding that higher tax morale (and thus lower participation in
the informal economy) is strongly correlated at the country-level with
greater levels of state intervention and at the individual-level with
characteristics such as gender, age, education and employment status,
the outcome is to confirm a structuralist political economy explanation
and refute the modernization and neo-liberal explanations and remedies,
as well as to uncover the importance of some policy solutions not
considered until now, including older citizens mentoring of younger
people, and improving women’s participation in the labour force.
