The Illegal Economy in the Restaurant Sector in Denmark

Abstract

This paper discusses some of the known illegal methods used in the restaurant business, for example tax fiddles, employment of illegal or undeclared labour, and illegal import of supplies. In Denmark, with its high tax and wage levels, the temptation to fiddle is possibly bigger than in other countries. This paper estimates the economic importance and employment consequences of shadow activities in the Danish restaurant sector. The authorities employ various methods in their continuing struggle against the underground economy, for example control actions and raids. Licensing and self-control launched by trade associations or public agencies is another way of limiting such behaviour. Deregulation and the lowering of taxes are supposed to have similar effects. In time, pressure by informed consumers might become a potent remedy. This paper discusses the efficiency in a European context. Fraud has a number of consequences, the loss of tax receipts being the most often mentioned. This paper also addresses problems such as the distortion of competition, inequality of access to cheaper services and the negative effects on the quality of products and services. For enterprises, participation in shadow activities may lead to growth trapping. If substantial proportions of restaurants' activities are not openly accounted for, it will put obstacles in the way of certain types of recognised business trajectories, and it will be difficult for public and trade associations to push for the continual professionalisation of the industry.