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a Brussels, 23 October 2013
Social and fiscal fraud in Belgium: how tangible is it with a survey?
Jozef Pacolet & Frederic De WispelaereHIVA – Research Institute for Work and Society
1. Definition and measurement problems
2. The use of a survey: Pros and cons
3. The design of an appropriate survey methodology
4. A pilot study on declared and undeclared income and work in
Belgium: SUBLEC
5. Unfair competition in the construction industry in Belgium : A
business survey on social fraud
Content
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1. Definition and measurement problems
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Definition:
Broad definition of evasion, avoidance and non or less taxation – including criminal and illegal activities
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
2. The use of a survey: Pros and cons
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• EC (2007) concluded from the Eurobarometer on undeclared work “results should be interpreted with great care, in view of the sensitivity of the subject, the pilot nature of the survey and the low number of respondents who reported having carried out undeclared work or having received envelop wages”
• A sensitive subject and threatening questions (= increased chance of a socially desirable answer and (item) non-response);
• Risk of underestimating the size of undeclared work
Nevertheless … one will obtain a detailed view of specific sectors, socio-economic categories, types of fraud (in search of ‘exhaustiveness’)
3. The design of an approriate survey methodology
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Choice of the survey method: face-to-face interviews- Most frequently used method to measure the size of undeclared work- Lower item non-response- Solving comprehension problems- Interviewer has to ‘sell’ the survey- Most sensitive questions can be answered on a seperate answer sheet .
Survey design: - Using a gradual approach
• Sensitive questions are embedded in related non-sensitive questions• Opinion questions before questions related to ‘own behaviour’ • Demand for undeclared work is more socially accepted than the supply of
undeclared work- Using indirect and implicit questions
• Asking about the behaviour of other people is less threatening than asking about the behaviour of the respondent
• Implicit questions/wording: e.g. ‘unfair competition’ instead of ‘fraud’
4. A pilot study on declared an undeclared income and work (SUBLEC)
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• Scope: A detailed (exhaustive) questionnaire (opinion; own demand for and supply of undeclared work; other types of fiscal fraud; specific questions for employees, self-employed, benefits recipients and non-active people)
• Methodology: Face-to-face interviews
• Sample: Belgian population aged 18 to 75 (sample of 5 202 persons)
• Response group: 246 persons (response rate of 4.8%) (It became a ‘Pilot Study’)
• Important limitation: Invitation letters were sent to the gross sample by a third party. Persons willing to participate had to send back a letter of consent confirming their willingness to participate.
4. SUBLEC: Micro evidence for Belgium compared with Europe
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SUBLEC: Belgium (2010)
Eurobarometer: Belgium (2007)
Eurobarometer: EU27 (2007)
Demand for undeclared work: services/goodsGeneral 38.8% 11.0%Services 35.2% 15.0% 9.0%Goods 14.1% 8.0% 6.0%Average amount (€) 1,553 1,050 1,028% GDP per capita 1.9% 0.6% 0.6%Supply of undeclared work: services/goodsGeneral 14.1% 6% 5%Average amount (€) 1,332 1,000 1,119% GDP per capita 0,6% 0,2% 0,2%
Source: Pacolet et al. (2012) and EC, Eurobarometer, 2007
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)
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DK
LV
NL
EE
SE
AT
CZ
HU
LT B
E BE-S
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d FR
SK
BG
EU27
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EL FI
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Y 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Percentage of persons who are 'self declaring' that their doing undeclared work
Source: Pacolet et al. (2012)
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4. SUBLEC: Summary of the Belgian underground economy
Frequency (% of people)
Volume (% of total amount)
Know someone
Demand for undeclared work 38.8% 79.2%Supply of undeclared work 14.1% 78.5%Envelope wage 2.0%Social benefit fraud 5.6%*** 52.1%Benefit cumulated with undeclared work 4.3%***Tax declaration not completely correct 24.1% 2.3%*Inheritance 5.5% 49.7%** 41.3%
* As % income of all respondents** As % income of the respondents committing fraud*** As % of benefit recipients
Source: Pacolet et al. (2012)
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4. SUBLEC: Own behaviour and opinion about other people
• Demand for undeclared work- Own demand: 38.8% of the respondents, good for 1.9% GDP/capita and 4% of
the family expenditure per capita;- Opinion about other people: 41.6% of the population;- Opinion about the size of undeclared work: 23% of disposable income.
• Supply of undeclared work- Own supply: 14.1% of the respondents, good for 0.6% GDP/capita;- Opinion about other people: 38.3% of the population;- Opinion about the size of undeclared work: 27.9% of the labor income.
• Tax declaration not completely correct- Own behaviour: 24.1% of the respondents, good for 2.3% of total income;- Opinion about other people: 37.7% of the population.
Source: Pacolet et al. (2012)
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4. SUBLEC: Determinants of fraud
Parameter Variable Demand for undeclared work
Supply of undeclared work Fiscal fraud
Estimation Pr> Khi2 Estimation Pr> Khi2 Estimation Pr>Khi2
Intercept -0.3613 0.3172 -2.1466 0.0001*** 0.5952 0.0752*
Sex Man -0.0331 0.8543 0.6068 0.013** 0.0162 0.9305Region French-
speaking-0.0896 0.6217 0.424 0.087* -0.2762 0.1495
Socio-economic category
Self-employed 0.8488 0.0327** 0.1701 0.6884 0.1999 0.6179
Benefits recipient
-0.4383 0.0248** -0.7391 0.0094*** 0.3426 0.0932*
Inactive -0.4079 0.2298 0.3395 0.3443 0.0457 0.8858Know someone (demand)
Yes 0.8468 0.0006***
Know someone (supply)
1.1406 0.0106**
Know someone (fiscal fraud)
-0.0152 0.9379
Income (1) Difficult -0.3393 0.0710* 0.1508 0.5495 0.0667 0.7337Morality (2) Totally agree -0.5279 0.0661* -0.652 0.0575* 0.3207 0.271 Rather agree 0.261 0.3768 -0.5856 0.0847* -0.0158 0.9571 Disagree -0.1914 0.6261 -0.23 0.6265 -0.1203 0.7575Note: *, **, 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)
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4. SUBLEC: Opinion about the determinants of undeclared work
10.9%
11.4%
77.7%
Morality, behavior
Inspection, risk of being caught, enforcement
Taxes, regulation, red tape
België
Source: Pacolet et al. (2012)
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4. SUBLEC: Opinion about the most effective policy measures to fight against undeclared work
6.8%
35.1%58.1%
Morality, behavior
Inspection, risk of being caught, enforcement
Taxes, regulation, red tape
Belgium
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4. SUBLEC: Some ‘remarkable’ results
• Undeclared work more formal organized in Flanders and more informal in Wallonia;
• What if the undeclared good or service is only available in the regular economy?: 2/3 would have bought it from the regular market and 1/4 would have done it by himself;
• No guarantee in the case of faillure or error is an important reason for not buying goods or services on the black market;
• A positive impact of subsidies on the decision to invoice the work;• Coherence between the supply and the demand of undeclared work; • Coherence between opinion and own behaviour related to
undeclared work.
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• 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)
4. SUBLEC: Some conclusions
5. Unfair competition in the construction industry in Belgium: Answer to part not covered by a population survey
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Type undeclared work
Individual (demand)
Firm(demand)
Individual (supplier)
Covered from demand and supply side
Covered from demand size
Firm (supplier)
Covered from demand size
Not covered
Source: A. Riedmann, Eurobarometer pilot survey,2007
5. Unfair competition in the construction industry in Belgium: Some conclusions
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• 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 respondentsSome 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
5. Unfair competition in the construction industry in Belgium: Relevance for further continuation
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• 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
References
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• 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), Deloyale concurrentie in de bouwsector. Een terreinverkenning van mechanismen van sociale fraude, hun omvang en hun gevolgen voor 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.
