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2009 | 19 | 4 | 87-108

Article title

DILEMMAS OF ENTERPRISES LEAVING THE HIDDEN ECONOMY. CASE STUDY. MESSENGER SERVICE PROVIDERS IN BUDAPEST, 2006-2008 (A rejtett gazdasagbol valo kilepes dilemmai. Esettanulmany. Budapesti futarszolgalatok 2006-2008)


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Some of the enterprises providing messenger services in Budapest radically decreased their involvement in the hidden economy in the summer 2006, which provides a unique opportunity to study the combined effect of two specific government measures: increasing the expected costs of hidden economic activities and tax amnesty. Furthermore, it could be explored how the two initiatives interact with the crucial variables defining involvement in hidden economy, and which additional impacts for the whole market emanate from the legalization of a small number of market players. Through interviews with CEOs of major companies on the market and a few of their employees, the study focuses on the following: from which motivations, according to what conditions and based on which strategies did the enterprises change their tax paying behavior? Furthermore, the success and downsides of such strategies were also examined. According to the results, the key ingredients for changing the involvement in the hidden economy are: the moral costs of the CEO stemming from illegal taxpaying practices (tax morale) and the subjective appraisal of costs and benefits of operating in the hidden economy. Nevertheless, these factors can only lead to alterations in the degree of tax evasion if the financial situation, market position of the enterprise, and its relation towards customers and employees can provide a solid basis for covering the additional costs of fulfilling all legal obligations. These factors, in turn, determine the slices of the extra costs each involved actor has to bear. The main findings suggest, firstly, that governments can successfully fight hidden economy by decreasing the administrative burden of enterprises, clear communication of regulatory intentions, and lowering the expected net benefits of involvement in the grey economy. Secondly, improving the public opinion on government and tax morale both motivate economic actors to reveal their hidden economic activity. Lastly, tax amnesties entail relatively low long-run costs in an economic environment where tax compliance is not the prevalent norm. However, these factors can only lead to a permanently lower proportion of hidden economy if they are able to motivate a sufficiently high proportion of economic actors of a given market to leave the hidden economy.








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