Shadow economy shrank 2.2% last year - research

Last year Latvia's shadow economy shrank faster than in 2014, Arnis Sauka, Assistant Professor at the Stockholm School of Economics, told Latvian Radio Thursday. 

The shadow economy shrank 0.3% in 2014 and 2.2% in 2015.

According to Sauka, the shadow economy grew in Estonia and Lithuania last year, however in Latvia it still constitutes a larger part of the economy. 

He said that tolerance towards tax evasion is high and tax morals are low, a fact related to low levels of trust towards the state and state services.

Sauka said that Latvia lacks a clear plan in fighting the shadow economy, and the one that was in place until 2012 was largely brought in due to pressure by international lenders.

He said that unofficial wages are not Latvia's largest problem, but the country lags behind in measures like unreported income. According to Sauka, unofficial wages are particularly common in the construction industry.

"The shadow economy index in the Baltics (as percent of GDP)."

The annual Stockholm School of Economics report on the shadow economy in the Baltics was released Thursday.

Among its key findings are that the largest share of the shadow economy in Latvia is due to underreporting of business income and that the second largest contributor to the unreported economy are unofficial or "envelope" wages. 

Find the full report here (English).

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