Undeclared Work in Croatia: A Social Exchange Perspective

Across the world, studies of undeclared work have largely focused on measurements of its size rather than unearthing the nature and motives of those engaged in the undeclared economy, which is required if undeclared work is to be tackled. The aim of this thesis is to use social exchange theory (SET) to develop a theoretically informed framework for understanding participation in undeclared work. This framework views an understanding of both vertical (government-citizen) and horizontal (amongst citizens) relations as crucial when explaining participation in undeclared work. When analysing the former, social contract and elements of trust and justice are considered, whereas the latter considers the level of tolerance of undeclared work and influence of social norms. The aim of this thesis, therefore, is to use a study of Croatia to evaluate not only the validity of current theorisations of undeclared work, but also the validity of SET as a conceptual framework to explain participation in undeclared work. In doing so, this thesis provides not only the first contemporary study of undeclared work in Croatia, but also the first known attempt to use SET to understand this phenomenon. To achieve this, 300 face-to-face interviews have been conducted in the city of Split, along with 20 in-depth follow-up interviews in 2012.
The findings reveal not only the multifarious character of undeclared work and diverse motives underpinning the decision to participate in this realm, but also how SET provides a useful framework for explaining such engagement. The level of trust in the state and social norms are shown to explain to a significant extent engagement in the undeclared economy. This thesis then unpacks how citizens conceptualise the social contract with the state, as well as the complex formation of social norms surrounding undeclared activities. Having established the applicability and usefulness of social exchange theory as an underpinning framework for understanding undeclared work, the wider policy implications are then drawn out. This reveals that in populations where tax morale is low and the social contract weak, there is a need to focus upon indirect policy measures that seek to improve the vertical relations, as well as change the social norms embedded in the horizontal relations that currently normalise undeclared work.