The Impact of Social Norms on Undeclared Work

In this chapter, we turn to the last of the main factors which, according to the economic theory of tax evasion, affect the extent of undeclared work. In the approach used by Allingham and Sandmo (1972), tax morale residually explains the level of tax compliance independent of tax policy and the behavior of state authorities. This argument is consistent with the view that fundamental social norms, such as religion or civic duty, shape tax morale. Feld and Frey (2007) provide a more elaborate discussion on which factors shape tax morale by establishing a relationship of social exchange. According to their approach, tax morale is endogenously driven by government behavior.