Corruption or widespread administrative malfunction?
A Policy failure warning

by Alina Mungiu-Pippidi
Executive Director, SAR, Romanian Academic Society, Bucharest

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The underground economy in Croatia

by Dr. Predrag Bejakovic
Institute of Public Finance, Zagreb

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Going Informal: Benefits and Costs

by Tatiana Nenova
The World Bank, WB Washington D.C.

All types of informal activities have something in common: the entrepreneurs who pursue them believe the benefits of informality outweigh their costs. Some activities will always stay informal: illegal activities like drug trafficking are one example; house-cleaning is another, more innocuous, example. No amount of improvement in the regulatory environment for doing business will change their status. Fortunately, such activtities account for a small share of gross domestic product in the average developed economy. Many activities that now take place in the informal or semi-formal economy in EU accession countries will be legalized if entrepreneurs see the costs of informality rising and its benefits falling. In this paper, we develop a taxonomy of informal activity. We then discuss the perceived costs and benefits of informality from the point of view of entrepreneurs, and of the government. Next, we suggest several policy reforms, based on the experience in other countries. Finally, we conclude with a priority list for the policy maker who would like to see most companies going formal.

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The Size and Development of the Informal Economy in East and West Europe: What do we know?

by Prof. Dr. Friedrich Schneider
Vice Director for Foreign and External Relations, Johannes Kepler University, Linz

Content of the presentation:

1. Size and development of the shadow economy of 21 OECD countries in the period 1990-2002;
2. Size and development of the shadow economy of East-European countries in the period 1990-2000;
3. Methods to estimate the shadow economy;
4. Major causes of the growth of the shadow economy;
5. Interaction of the shadow economy with the official one;
6. Policy implications of a growing shadow economy.

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Black cash tax evasion in Russia: Its forms, incentives and consequences at firm level

by Dr. Andrei Yakovlev
Institute for Industrial and Market Studies at State University - Higher School of Economics

The Tax Avoidance in Bulgaria: the Human Capital Approach

by Assos. Prof. Dr. Andrey Zahariev
Dragan Tsenov Academy of Economic, Svishtov

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Why People Evade Taxes in the Czech and Slovak Republics: A Tale of Twins

by Dr. Jan Hanousek, CERGE-EI, Prague
and
Filip Palda, Senior Fellow, The Fraser Institute, Montreal; University of Quebec

The present paper uses a survey of 1062 Czechs and 524 Slovaks to ask why people evade taxes. We maintain that the Czech and Slovak Republics are "twins" separated at birth and that divergences between these countries since their separation in 1992 can explain divergences in their rates of tax evasion. High Slovak tax rates and lower Czech tax rates seem to explain little of the difference in evasion between the two countries. Rising Czech incomes seems the main reason that Czech Republic evades more taxes. We also look at detailed demographic and psychological reasons for tax evasion. We find that morality is a strong deterrent to evasion.

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Informal Labor Market and Informal Economy: The Polish experience

by Maciej Grabowski
Institute for Market Economies, Gdansk

The goal of this presentation is to shed light on relationship between informal labor market and informal economy, its main reasons, characteristics and methods of estimation, and changes during economic transformation.

The nature and mechanics of the informal sector were changing parallel to deregulation, liberalization and growing competition. If prior to 1989 reforms the informal sector in Poland were mainly stimulated by excessive limitation in business (including the prohibition of certain forms of activity, the necessity of obtaining licenses etc.) and by limited access to the means of production (including labor). Since 1989 the improvement of the competitive position (for instance by reducing costs) has constituted the main incentive to remaining within the underground economy for firm.

Informal labor obviously represents only a part of the underground (or informal) sector. Clandestine employment (or informal labor) may be defined as additional or basic employment, which is undertaken by-passing regulations of the employment or taxation codes. Such a definition can be applied to both illegal employment between households and companies, irrespective of whether they are registered or not, and it also includes self-employed. Methods used to estimate this phenomenon includes Labor Force Surveys, special polls, census, and comparison this data with national labor statistics. Challenge of integration also means to reduce unemployment and informal labor market at the same time. Labor market policies alone will not provide sufficient instruments to face this challenge.

Currency Circulation after Currency Board Introduction in Bulgaria
(Transactions Demand, Hoarding, Shadow Economy)

by . Nikolay Nenovski
Bulgarian National Bank

The Informal Economy in the EU Accession Countries: Size, Scope, Trends and Challenges to the Process of EU Enlargement

by Liliana Doudeva
Seniour Researcher Economic Information, Center for Economic Development

Informality and Poverty

by Zeynep Kudatgobilik and Alexander Marc
The World Bank

The informal sector is a critical component of many economies of the Eastern Europe and the former Soviet Union. The economic, social and political re-engineering which characterize transition to a market economy and western style democracy creates many uncertainties as well as many opportunities, a large part of this process has actually happened outside of official channels through informal relations and activities. The purpose of this paper is to examine the significance of the link between "informality" and poverty in South East Europe. The paper argues that what is relevant for the poor is not so much the informal "sector" but the fact that informality is a way to cope and survive. Drawing on the empirical work carried out through social and poverty assessments by World Bank staff, the paper suggests that the underlying facts that lead the poor towards informality as a survival are linked to the failure of the formal system: lack of employment and inability of state institutions to provide adequate healthcare and education services, regulatory oversight and public security. We will illustrate these connections through an examination of three aspects of informality:

i) in access to social services;
ii) in access to revenue and employment; and
iii) in obtaining favors, justice and security.

This paper aims to contribute to understand the dynamics of informality and draw a portrait of the characteristics of informality and poverty. The paper also tries to explore the challenges of reducing poverty by building more inclusive policies in South East Europe taking fully into account the importance of informality in the coping mechanisms of the poor.

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Barriers to Participation: The Informal Sector in Emerging Democracies
The Case of Hungary

by Laszlo Kallay
Institute for Small Business Development, Hungary

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Behind the informal economy: estimating, explaining,counteracting

by Guoda Steponaviciene
Vice President, Lithuanian Free Market Institute, Vilnius

Risk Reporting and Early Warning for Good Governance and Against Corruption

by Associate Professor Atanas Gotchev, Ph. D.
UNDP–Sofia and University of National and World Economy, Bulgaria

Case Study: Serbia

by Danijel Pantic
Secretary General, European Movement in Serbia, Belgrade

Comments on papers of Friedrich Schneider and Tatiana Nenova

by Andrei Yakovlev
Director, Institute for Industrial and Market Studies at State University - Higher School of Economics, Moscow

Movement to e-Government in Russia: problems and prospects

by Andrei Yakovlev
Director, Institute for Industrial and Market Studies at State University - Higher School of Economics, Moscow

Economic Cooperation in Southeast Europe

Dr. Daniela Elena Stefanescu
Vice President, National Institute of Statistics of Romania, Bucharest