Tackling Undeclared Work in Croatia: Knowledge-Informed Policy Responses

Undeclared work has deep roots in Croatia. One in eleven declare to have done some fully undeclared work. Six out of ten though believe at least 20% of their compatriots violate tax and labour laws. The perception of the widespread nature of undeclared work and the lack of trust in formal institutions seem to be the main incentives for people to engage in undeclared work. These have been exacerbated by high unemployment and low retirement income. Hence, the conventional rational actor approach to tackling undeclared work that focuses upon increasing penalties and surveillance has become less effective in Croatia. An alternative perspective, called the social actor approach, focuses upon the changing values and beliefs, and the modernising of formal institutions. It seems to have stronger empirical support in Croatia. The Croatian government should at the very least supplement penalties and surveillance with more marketing, education, and higher social spending to tackle undeclared work.