Undeclared Work in the Acceding States and Candidate Countries by Ruslan Stefanov, Center for the Study of Democracy (Findings of conference discussions under the project ‘The Informal Economy in the EU Accession Countries: size, scope, trends and challenges to the process of EU Enlargement’ /INFOREC/ 1 ) INTRODUCTION The accession of the first 8 candidate countries from Central and Eastern Europe to the European Union and the clear prospects for further enlargement of the Union to the east brings forward many questions to the mutual influences of new and existing member-states’ economies and societies. With unemployment in the EU 15 on the rise again, looming public expenditure difficulties in key euro area economies and increasing pressure from global competition, as well as several public scandals over tax evasion the issue of informal economy and labour and its impact on official affairs has resurfaced. On the other hand with large scale transition and structural reforms more or less completed in all candidate countries 2 , coupled with falling privatization revenues and rising expenditures, governments in those countries seek to optimize returns from the existing economic structure and turn increasing attention to the development on informal economy and the existence of undeclared work in their societies. Accession to the EU exacerbates the importance of studying the nature, causes and effects of undeclared work in the candidate countries, not least to ensure that EU wide policies in this area do not affect negatively their development and really contribute to the enhancement of their well being. This paper seeks to give a fair overview and introduction to the problem of undeclared work in the candidate countries and propose alternatives to dealing with it. Immediately after the start of the transition process in 1989 the countries in CEE experienced strong incentives toward liberalization; in the new environment the growth of economic activities was spontaneous, adequate regulation was missing and parallel to the flourishing private enterprise informality underwent an explosive growth 3 . As state interaction with society had to be re-legitimized on a new basis and the capacity of the states in the region to interact with private business had to be built practically from scratch, the opportunities for informal activities were abundant. In spite of the growing efforts of governments to get a grip on economic activities the informal sector reached a size of over 30 percent of GDP in some CEE countries. In this situation it is logical to ask a number of questions – for instance, how these realities will fit into the highly regulated economic and social space of the EU, what threats will the integration of strong informal economies bring to the integrity of the union, will this integration not make it hard to address some of the adverse consequences of the large informal sector (for instance, cross-border crime and illegal labor movements), etc. In this context a better understanding of the role of the informal economy and its implications for unified Europe is a serious challenge for theorists and practitioners. An important task in this regard is to achieve an effective cooperation among academics and policy analysts from EU member states and candidate countries studying the phenomenon of informality in Central 1 More information on the discussions and on the presented papers can be found in Internet at http://www.csd.bg/news/bertelsman.html and http://www.csd.bg/news/infeconomy.htm 2 For simplicity, in this paper we shall use ‘candidate countries’, accession countries’ and ‘transition countries’ interchangeably to mean: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia. 3 These two paragraphs are entirely based on the summary of Dr. Boyan Belev of participants’ contributions from the international conference under the INFOREC project.