Shadow economy still more than a fifth of GDP

Despite some advances in shrinking the size of Latvia's unofficial or 'shadow' economy, it remains equivalent to more than 20% of Gross Domestic Product, an annual report on the subject concluded May 10.

The Stockholm School of Economics in Riga's 'Shadow Economy Index' is estimated annually based on surveys of entrepreneurs in the Baltic countries. It combines misreported business income, unregistered or hidden employees, and ‘envelope’ wages to estimate the shadow economies as a proportion of GDP.

"Following the trend since 2015, there has been a modest increase in the size of the shadow economies in Estonia and Lithuania during 2016. In contrast, the shadow economy in Latvia has continued to contract, following its long-term trend. Despite these changes, the shadow economy in Latvia remains larger than in the other Baltic countries," the report says.

"Our estimates indicate that the Estonian and Lithuanian shadow economies now account for around 15.4% and 16.5% of GDP (after increasing by 0.5% and 1.5% in 2016), respectively, whereas in Latvia, after contracting by approximately 1.0% in 2016, the shadow economy is now estimated at around 20.3% of GDP. Thus, the difference in the sizes of the three shadow
economies has further decreased in 2016," it adds.

You can peruse the full report HERE.

"Our results highlight the need for continued reforms and actions that combat the shadow economy; in Latvia, to close the gap compared to the neighbouring countries, and for Estonia and Lithuania, to reverse the modest increases in the size of the shadow economies recently," say the authors of the report Dr. Arnis Sauka and Dr. Tālis Putniņš.


 

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