The shadow economy

ID06 project, Sweden

The construction industry in Sweden has introduced a voluntarily system of staff registration using identity cards, namely the ID06 project initiated in 2007 by a group of organisations within the construction sector called 'The Construction Sector in Co-operation' (translated from Byggbranschen i Samverkan, BiS). The members are seven business organisations and five trade unions within the construction sector. The head organisation is the Swedish Construction Federation (Sveriges Byggindustrier, Bl).

The ID06 project consists of the following measures:
• A requirement that everyone who attends a construction site must carry valid ID06 identification.
• The subcontractor is obliged to register the employees in advance with the head contractor.
• Daily registration of authorised employees at the workplace.
• The daily registration must be saved for two years and be available at the site in case of a control visit from the National Tax Agency.
• The head contractor has the right to remove anyone from the construction site who is not authorised.
• The head contractor has the right to demand a fine of 500 SEK (€50) per person per day if employees cannot show the required identification.
Some three hundred card readers and 60,000 identity cards have been distributed, with 8,000 new identity cards issued each month. About two thousand companies, including all major national ones, are now involved in ID06. The ID06 card costs 90 SEK (€9) per employee. The card reader device costs 8,000 SEK (€800).

Despite the widespread advocacy of measures to improve detection, evaluations are far from conclusive as to whether such measures have proved effective. Some studies find that increasing the probability of detection reduces participation in shadow work for some income groups at least (Beron et al., 1992; Dubin and Wilde, 1988; Dubin et al., 1987; Slemrod et al., 2001). Others find, however, that it actually leads to a growth in shadow work and/ or has little or no effect on overall compliance levels (Bergman and Nevarez, 2006; Elffers et al., 1987; Friedland, 1982; Korn-hauser, 2008; Murphy, 2008; Spicer and Lunstedt, 1976; Varma and Doob, 1998; Webley and Halstead, 1986). Instead, it is often argued that the level of voluntary compliance is in only small part explained by the existence of effective audit, inspection and detection regimes. In major part, such compliance is explained by the degree to which there is a commitment to tax morality in the population (Kornhauser, 2008; Murphy, 2008). For these reasons, a cautious approach is urged regarding the improvement of detection as anything other than a contributory measure for tackling the shadow economy.