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Brussels, 23 October 2013

Social and f iscal f raud in Belgium: how t angible is it with a survey?. Brussels, 23 October 2013. Jozef Pacolet & Frederic De Wispelaere HIVA – Research Institute for Work and Society KU Leuven Jozef.pacolet@hiva.kuleuven.be. Content. Definition and measurement problems

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Brussels, 23 October 2013

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  1. Social and fiscalfraud in Belgium: howtangible is itwith a survey? Brussels, 23 October 2013 Jozef Pacolet & Frederic De Wispelaere HIVA – Research Institute for Work and Society KU Leuven Jozef.pacolet@hiva.kuleuven.be

  2. Content • Definition and measurement problems • The use of a survey: Pros and cons • The design of an appropriate survey methodology • A pilot study on declared and undeclared income and work in Belgium: SUBLEC • Unfair competition in the construction industry in Belgium : A business survey on social fraud

  3. 1. Definition and measurement problems • Definition: • Broaddefinitionof evasion, avoidance and non or lesstaxation – includingcriminal and illegalactivities • Measurement – ‘Making the invisible visible’: • On a macro level (indirect) • On a micro level (direct): e.g. survey(population, firms, inspection services, …), • Reconciliation of methods

  4. 2. The use of a survey: Pros and cons • EC (2007) concludedfrom the Eurobarometer on undeclaredwork“resultsshouldbeinterpretedwithgreat care, in view of the sensitivity of the subject, the pilot natureof the survey and the low number of respondentswhoreportedhavingcarried out undeclaredwork or havingreceived envelop wages” • A sensitive subject and threateningquestions (= increased chance of a sociallydesirableanswerand (item) non-response); • Risk of underestimating the size of undeclaredwork • Nevertheless … onewillobtain a detailed view of specific sectors, socio-economiccategories, types of fraud(in search of ‘exhaustiveness’)

  5. 3. The design of anapproriate survey methodology • Choice of the survey method: face-to-face interviews • Most frequentlyusedmethodtomeasure the size of undeclaredwork • Lower item non-response • Solvingcomprehension problems • Interviewer has to ‘sell’ the survey • Most sensitivequestionscanbeanswered on a seperateanswer sheet . • Survey design: • Using a gradual approach • Sensitivequestions are embedded in related non-sensitivequestions • Opinion questionsbeforequestionsrelatedto ‘ownbehaviour’ • Demand for undeclaredwork is more sociallyacceptedthan the supply of undeclaredwork • Using indirect and implicitquestions • Askingabout the behaviour of otherpeople is lessthreateningthanaskingabout the behaviour of the respondent • Implicitquestions/wording: e.g. ‘unfair competition’ instead of ‘fraud’

  6. 4. A pilotstudyondeclaredanundeclaredincome and work (SUBLEC) • Scope: A detailed (exhaustive) questionnaire (opinion; owndemandfor and supply of undeclaredwork; other types of fiscalfraud; specificquestionsfor employees, self-employed, benefits recipients and non-activepeople) • Methodology: Face-to-face interviews • Sample:Belgianpopulationaged 18 to 75 (sample of 5 202 persons) • Response group: 246 persons (response rate of 4.8%) (Itbecame a ‘PilotStudy’) • Important limitation: Invitation letters were sent to the gross sample by a third party. Personswilling to participate had to send back a letter of consent confirmingtheirwillingness to participate.

  7. 4. SUBLEC: Micro evidence for Belgium comparedwith Europe Source: Pacolet et al. (2012) and EC, Eurobarometer, 2007

  8. 4. It is a matter of questioning: people engaged in undeclared work in the Eurobarometer 2007 compared with a more in depth survey in Belgium Source: Eurobarometer, 2007 and Pacolet et al. (2012)

  9. 4. SUBLEC: Summary of the Belgian underground economy * As % incomeof allrespondents ** As % income of the respondentscommittingfraud *** As % of benefit recipients Source: Pacolet et al. (2012)

  10. 4. SUBLEC: Ownbehaviourand opinion aboutotherpeople • Demandforundeclaredwork - Owndemand: 38.8% of the respondents, goodfor 1.9% GDP/capita and 4% of the family expenditure per capita; - Opinion aboutotherpeople: 41.6% of the population; - Opinion about the size of undeclaredwork: 23% of disposable income. • Supply of undeclaredwork - Ownsupply: 14.1% of the respondents, goodfor 0.6% GDP/capita; - Opinion aboutotherpeople: 38.3% of the population; • Opinion about the size of undeclaredwork: 27.9% of the laborincome. • Tax declarationnotcompletely correct - Ownbehaviour: 24.1% of the respondents, goodfor 2.3% of totalincome; - Opinion aboutotherpeople: 37.7% of the population. Source: Pacolet et al. (2012)

  11. 4. SUBLEC: Determinants of fraud Note: *, **, and *** indicate significance at the 10%, 5% and 1% level, respectively. 1 Get by on their monthly income? 2 The tax burden is too high in Belgium? Source: Pacolet et al. (2012)

  12. 4. SUBLEC: Opinion about the determinants of undeclaredwork Source: Pacolet et al. (2012)

  13. 4. SUBLEC: Opinion about the most effective policy measurestofightagainstundeclaredwork Source: Pacolet et al. (2012)

  14. 4. SUBLEC: Some ‘remarkable’ results • Undeclaredwork more formalorganized in Flandersand more informal in Wallonia; • Whatif the undeclaredgood or service is onlyavailable in the regulareconomy?: 2/3 would have boughtitfrom the regular market and 1/4 would have doneitbyhimself; • No guarantee in the case of faillure or error is an important reasonfornotbuyinggoods or services on the black market; • A positive impact of subsidies on the decisiontoinvoice the work; • Coherencebetween the supplyand the demand of undeclaredwork; • Coherencebetween opinion andownbehaviourrelatedtoundeclaredwork.

  15. 4. SUBLEC: Someconclusions • This detailed questionnaire should be assumed as a ‘good practice’ (e.g. relevant for the national accounts, policy makers, ...) • Method of contacting influences the response rate considerably (‘good practice’: direct contact – several times) • Computer assistance (CAPI) is recommendable (will avoid data cleaning) • A large, exhaustive questionnaire needs a certain size to guarantee representativeness and a detailed analysis. • Time and cost consuming – repeat with a certain time gap (e.g. every 5 year)

  16. 5. Unfair competition in the construction industry in Belgium: Answer to part not covered by a population survey Source: A. Riedmann, Eurobarometer pilot survey,2007

  17. 5. Unfair competition in the construction industry in Belgium: Some conclusions • Survey was on unfair competition …or undeclared work • Own undeclared activities: were not asked • Organized as an electronic survey • With the support of the business organizations in Flanders and Wallonia • Willingness to collaborate : 406 respondents • Some remarkable responses: • 12 % of all the offers are suspect • The industry thinks it is used by 27 to 29 % of the firms • 50-60 % say they are confronted with damage because of unfair competition • They observe some 30 % of price cutting • And some 25-30 % loss of volume (1,8 – 2,3 FTE in an industry with especially small firms of 6 FTE) • Underdeveloped regions are more confronted with it • Leaving us with a picture of a vicious circle of underdevelopment, unemployment, undeclared work, lack of control

  18. 5. Unfair competition in the construction industry in Belgium: Relevance for further continuation • Depends on willingness to collaborate with stakeholders • Could stimulate the collaboration and involvement of stakeholders • Advantage of doing combined or mirror research with employers and trade unions • Could be an action research • Could be easily integrated in regular business surveys • Limited questions could be added to regular business surveys • Might be interesting to be replicated in certain Belgian industries (in collaboration between the controllers, the employers and the employees) • Already suggested industry is catering industry; other thinkable industries are transport, cleaning, independent workers of all industries • Could be organized in international perspective • Could be concentrated on unfair competition and competitive advantages and disadvantages

  19. References • Pacolet, J. & De Wispelaere, F. (2012), ‘Designing an appropriate survey methodology to reveal social and fiscal fraud’, HIVA Working Paper, 29 p. • Pacolet, J., Perelman, S., De Wispelaere, F., Schoenmaeckers, J., Nisen, L., Fegatilli, E., Krzeslo, E., De Troyer, M. & Merckx, S. (2012), Social and fiscal fraud in Belgium – A pilot study on declared and undeclared income and work: SUBLEC, ACCO, Leuven, 145 p. • Pacolet, J. & Baeyens, K. (2007), Deloyaleconcurrentie in de bouwsector. Eenterreinverkenning van mechanismen van socialefraude, hunomvang en hungevolgenvoor de sector, HIVA – KU Leuven, Leuven, 149 p. • Pacolet, J., De Wispelaere, F. (2013). The Informal Economy and the Present Economic Crisis in Europe. Is There an Influence?. In: Saitta P., Shapland J., Verhage A. (Eds.), Getting By or Getting Rich? The Formal, Informal and Criminal Economy in a Globalized World. The Hague (Netherlands): Eleven International Publishing, 11-27.

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