engleski

Tackling undeclared work in societies with substantial asymmetry between formal and informal institutions – the case of FYR Macedonia

In spite of the recommendations by the European Commission to put more emphasis on measures fostering voluntary compliance, policymakers across the EU and beyond continue to perceive deterrence and prevention as the most effective strategies to combat unregistered economic activities. However, considerable amount of evidence gathered during the last several years has revealed limited effectiveness of coercion, particularly in countries with pronounced asymmetry between formal and informal institutions. This paper adds to the debate on appropriate policy responses towards unregistered practices by examining the case of FYR Macedonia, an EU candidate country whose government has repeatedly declared its strong resolve to reduce the size of undeclared work. However, in spite of significant improvement in repression during the past few years and notable efforts to prevent the occurrence of unregistered work from the onset, the share of the undeclared economy in the country remains substantial at nearly 35% of official GDP. The paper discusses reasons behind such limited success of the existing policy strategies to tackle the phenomenon in FYR Macedonia in the light of the country’s economic and sociocultural peculiarities. As we demonstrate, the poor economic situation accompanied with weak enforcement apparatus, prevalent distrust in state institutions and low level of social cohesion have undermined the authorities’ efforts to reduce the size of the undeclared economy. Given this, the paper calls for shift from coercion towards more refined strategies, i.e. those focused on the improvement of the psychological contract between the state and the taxpayers. Unless such an indirect approach is pursued, it is hard to expect further advancement in tackling unregistered work in this post-socialist country. Given the number of similarities with other transition economies, the arguments presented in the paper can easily be extended beyond the case of FYR Macedonia.

FYR Macedonia ; public policy ; tax morale ; undeclared work

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