Rethinking the shadow economy in terms of happiness. Evidence for the European Union Member States
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
This work is licensed under a Creative Commons Attribution 4.0 International License.
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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.
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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
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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
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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.
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