1. Design Charles & Ray Eames - Hang it all © Vitra Brussels, 23 October 2013 Social and fiscal fraud in Belgium: how tangible is it with a survey? Jozef Pacolet & Frederic De Wispelaere HIVA – Research Institute for Work and Society KU Leuven Jozef.pacolet@hiva.kuleuven.be

2. 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 2

3. 1. Definition and measurement problems 3 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

4. 2. The use of a survey: Pros and cons 4 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’)

5. 3. The design of an approriate survey methodology 5 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’

6. 4.A pilot study on declared an undeclared income and work (SUBLEC) 6 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.

7. 4. SUBLEC: Micro evidence for Belgium compared with Europe 7 SUBLEC: Belgium (2010) Eurobarometer: Belgium (2007) Eurobarometer: EU27 (2007) Demand for undeclared work: services/goods General38.8%11.0% Services35.2%15.0%9.0% Goods14.1%8.0%6.0% Average amount (€)1,5531,0501,028 % GDP per capita1.9%0.6% Supply of undeclared work: services/goods General14.1%6%5% Average amount (€)1,3321,0001,119 % GDP per capita0,6%0,2% 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) 8

9. Source: Pacolet et al. (2012) 9 4.SUBLEC: Summary of the Belgian underground economy Frequency (% of people) Volume (% of total amount) Know someone Demand for undeclared work38.8%79.2% Supply of undeclared work14.1%78.5% Envelope wage2.0% Social benefit fraud5.6%***52.1% Benefit cumulated with undeclared work4.3%*** Tax declaration not completely correct24.1%2.3%* Inheritance5.5%49.7%**41.3% *As % income of all respondents **As % income of the respondents committing fraud ***As % of benefit recipients

10. Source: Pacolet et al. (2012) 10 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.

11. Source: Pacolet et al. (2012) 11 4.SUBLEC: Determinants of fraud ParameterVariable Demand for undeclared work Supply of undeclared work Fiscal fraud EstimationPr> Khi 2 EstimationPr> Khi 2 EstimationPr>Khi 2 Intercept -0.36130.3172-2.14660.0001 *** 0.59520.0752 * SexMan-0.03310.85430.60680.013 ** 0.01620.9305 RegionFrench-speaking-0.08960.62170.4240.087 * -0.27620.1495 Socio-economic category Self-employed0.84880.0327 ** 0.17010.68840.19990.6179 Benefits recipient-0.43830.0248 ** -0.73910.0094 *** 0.34260.0932 * Inactive-0.40790.22980.33950.34430.04570.8858 Know someone (demand) Yes0.84680.0006 *** Know someone (supply) 1.14060.0106 ** Know someone (fiscal fraud) -0.01520.9379 Income (1)Difficult-0.33930.0710 * 0.15080.54950.06670.7337 Morality (2)Totally agree-0.52790.0661 * -0.6520.0575 * 0.32070.271 Rather agree0.2610.3768-0.58560.0847 * -0.01580.9571 Disagree-0.19140.6261-0.230.6265-0.12030.7575 Note: *, **, and *** indicate significance at the 10%, 5% and 1% level, respectively. 1Get by on their monthly income? 2The tax burden is too high in Belgium?

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

13. Source: Pacolet et al. (2012) 13 4.SUBLEC: Opinion about the most effective policy measures to fight against undeclared work

14. 14 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.

15. 15 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

16. 5. Unfair competition in the construction industry in Belgium: Answer to part not covered by a population survey 16 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

17. 5. Unfair competition in the construction industry in Belgium: Some conclusions 17 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 18 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 19 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.