8/2012 Jaanika Meriküll, Tairi Rõõm and Karsten Staehr. Perceptions of unreported economic activities in Baltic firms. Individualistic and non-individualistic motives

Working Papers of Eesti Pank No. 8/2012

This paper analyses managerial dishonesty in the form of economic activity not reported to the authorities. We employ data from a survey of Baltic firm managers, who were asked to assess the prevalence of unreported profits, employment and wages in their industry and to give their views on a range of questions related to various reasons for dishonest behaviour. Unreported economic activities are perceived to be widespread, although their extent and composition vary across the three countries. We employ a principal component analysis of the survey answers and identify three clusters capturing both individualistic and nonindividualistic motives for dishonest behaviour: 1) reciprocity towards government; 2) rational choice related motives; and 3) norms towards society as proxied by the tolerance of illegal activities. The econometric analysis indicates that all three motives are related to perceptions of unreported activities in the Baltic countries.

JEL Code: E61, F36, F41
Keywords: unreported economic activity, tax evasion, tax morale, norms,
governance, social coherence, Baltic countries
Corresponding author’s e-mail address: jaanika.merikyll [at] eestipank.ee

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The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank.