Leibfritz, Willi2012-03-192012-03-192011-12-01https://hdl.handle.net/10986/3691The paper examines the incentives and distortions created by tax policy and administration structures that motivate individuals to undeclare or under-declare work in the new EU member countries. It analyses the tax level and the tax structure "mix" of tax instruments, the special taxation regimes set up to attract workers and entrepreneurs back into the formal economy and how tax policies such as the introduction of a "flat tax" on income from labor and capital impacted workers and entrepreneurs in terms of formalizing work. It also attempts to gain some insight into the effectiveness of tax administration by comparing some input and output measures As non-tax factors can amplify the adverse effects of taxes on the labor market and reduce the effectiveness of tax reform, some of these other economic framework conditions are also discussed. This paper concludes by refining the main results and possible best practices for tackling undeclared work. The paper argues that the new EU member countries have had mixed success tackling undeclared work. While taxation matters, other underlying conditions for formal sector activity are also important. Addressing the problem of undeclared work therefore requires a broad policy approach with further improvements in tax policies, tax administration, and in general economic framework conditions for formal sector activity.CC BY 3.0 IGOADVANCED COUNTRIESADVERSE EFFECTADVERSE EFFECTSALLOCATION OF CAPITALARREARSBARRIERBUSINESS INVESTMENTBUSINESS TAXESCAPITAL FORMATIONCAPITAL GAINSCAPITAL INTENSITYCAPITAL TAXCASH ECONOMYCONSUMPTION TAXCONSUMPTION TAXESCORPORATE INCOME TAXCORPORATE TAXATIONCURRENCYDEBTDEDUCTIONSDISABILITY PENSIONDISPOSABLE INCOMEDIVIDENDDIVIDEND TAXATIONDIVIDENDSDOUBLE TAXATIONECONOMIC ANALYSISECONOMIC CRISISECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC REFORMECONOMIC REFORMSECONOMIC TRANSACTIONSEMPLOYMENT TAXEMPLOYMENT TAX CREDITSENTRY BARRIERSEXPENDITURESEXPORTFINANCIAL ASSETSFISCAL DEFICITSFIXED INVESTMENTFLAT TAXFLAT TAXESFOREIGN FIRMSFORMAL ECONOMIESFORMAL ECONOMYFRAUDGOVERNMENT BUDGETGOVERNMENT BUDGET DEFICITGOVERNMENT EXPENDITUREGOVERNMENT FINANCEGOVERNMENT REVENUESGOVERNMENT SPENDINGHOUSEHOLD INCOMEHUMAN DEVELOPMENTIMPLICIT TAXINCOME GROUPSINCOME LEVELINCOME LEVELSINCOMESINFORMAL ECONOMIESINFORMAL ECONOMYINSURANCEINSURANCE PREMIUMINSURANCE PREMIUMSINTEREST INCOMEINTERNAL CONTROLINTERNATIONAL BANKINTERNATIONAL BUSINESSINVESTMENT DECISIONSJOB CREATIONLABOR MARKETLABOR MARKETSLOSS OF REVENUEMACROECONOMIC CONDITIONSMARGINAL TAX RATESMARKET COMPETITIONMARKET CONDITIONSMARKET ECONOMYMARKET ENTRYMARKET REFORMMARKET REGULATIONSMONETARY FUNDOPTIMAL TAXATIONOUTPUTPAYROLL TAXPENSIONPENSION CONTRIBUTIONPENSION CONTRIBUTIONSPENSION REFORMPENSION SYSTEMPERSONAL INCOMEPERSONAL INCOME TAXPERSONAL INCOME TAXESPOWER PARITIESPRIVATIZATIONPROPERTY RIGHTSPROPERTY TAXPROVISIONSPUBLICPUBLIC EXPENDITUREPUBLIC EXPENDITURE REVIEWPUBLIC FINANCEPUBLIC FINANCE STATISTICSPUBLIC GOODSPUBLIC PROCUREMENTPURCHASING POWERREAL ESTATERED TAPEREGULATORY FRAMEWORKREPLACEMENT RATESREPUTATIONSALES TAXSALES TAXESSAVINGSSHARE PRICESSHAREHOLDERSSKILLED WORKERSKILLED WORKERSSMALL ENTERPRISESSOCIAL PROTECTIONSTATUTORY TAXSTATUTORY TAX RATESTRUCTURAL PROBLEMSTAXTAX ADMINISTRATIONTAX AVOIDANCETAX BASETAX BASESTAX BURDENSTAX CODETAX COLLECTIONTAX COLLECTORSTAX COMPETITIONTAX COMPLIANCETAX CREDITTAX ENFORCEMENTTAX EVASIONTAX EXEMPTIONTAX INCENTIVETAX INCIDENCETAX LIABILITYTAX MEASURESTAX POLICIESTAX POLICYTAX RATETAX RATESTAX REDUCTIONTAX REDUCTIONSTAX REFORMTAX REFORMSTAX REGIMETAX REGIMESTAX REVENUETAX REVENUESTAX SHIFTINGTAX STRUCTURETAX SYSTEMTAX SYSTEMSTAX TREATMENTTAX WEDGETAX WEDGESTAXABLE INCOMETAXATIONTAXES ON CONSUMPTIONTAXES ON LABOR INCOMETAXPAYERSTRANSITION COUNTRIESTRANSPARENCYWITHHOLDING TAXWORLD DEVELOPMENT INDICATORSWorld Bank10.1596/1813-9450-5923