# **Table of Contents**

|**1. Introduction .............................................................................................................. 1**|
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|**2. Undeclared Economic Activity is Widespread but there are Differences across**<br>**Countries ....................................................................................................................... 3**|
|**3. The Role of Taxes According to Opinion Polls ...................................................... 5**|
|**4. Channels Through which Taxes Affect Undeclared Work .................................. 8**|
|**5. The Overall Level of Taxes: Are public Sectors Too Large? ............................... 9**|
|**6. Is the Tax Mix Appropriate? ................................................................................. 12**|
|_6.1 Tax Mix, Economic Performance and Informal Economy – some general_<br>_considerations .................................................................................................................. 14_|
|**7. A High Tax Burden on Low Wages Hinders the Transition from Informal to**<br>**Formal Work ............................................................................................................... 17**|
|**8. Are Flat Personal Income Taxes Reducing Undeclared Work? ........................ 21**|
|_8.1 The Case of Estonia ................................................................................................... 23_|
|_8.2 The Case of Slovakia .................................................................................................. 27_|
|_8.3 The Case of the Czech Republic ................................................................................. 30_|
|**9. Employment Tax Credits Provide Incentives to take up Declared Work but**<br>**Disincentives to Increase it ........................................................................................ 32**|
|**10. The Tax Treatment of Families can provide Disincentives for Secondary**|
|**Earners to Declare Income ........................................................................................ 33**|
|**11. Simplified Tax Regimes can Ease Tax Compliance but Create New Loopholes**<br>**...................................................................................................................................... 34**|
|**12. Effective Tax Administration is a Precondition for Combating Undeclared**<br>**Work ............................................................................................................................ 37**|
|**13. Other Framework Conditions also Affect Undeclared Work .......................... 41**|
|_13.1 Skill level of the workforce ....................................................................................... 41_|
|_13.2 Wage-setting ............................................................................................................ 41_|
|_13.3 Regulatory burden for doing business ..................................................................... 43_|
|_13.4 Effectiveness of government institutions .................................................................. 44_|
|**14. Bringing All together: Are There Best Practices to Follow? ............................ 45**|
|**Bibliography ................................................................................................................ 51**|

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