ECONOMY

Shadow economy at 24 pct of GDP

The size of Greece’s shadow economy – or the part of the economy not accounted for in official statistics – reached 24 percent of the country’s gross domestic product in 2012, or 46.4 billion euros, according to a report published yesterday by the Institute of Economic Affairs.

Three in every eight Greek workers (37.3 percent) were without social security in 2008, while the country has the highest share of illegal immigrants working in the world.

The IEA data show that the shadow economy in Greece ranged between 22.6 percent in 1989-90 and 29 percent of GDP in 1997-98, though that does not mean that it has shrunk. In 2001 the shadow economy amounted to 28.2 percent of GDP, or 41.2 billion euros. Last year it may have declined to 24 percent of GDP, but given the relative increase in the size of the economy in the middle of the last decade, it is believed to have swollen to 46.4 billion euros.

This illustrates how crucial combating the shadow economy will be toward the improvement of the country’s fiscal figures and a possible easing of austerity measures.

In the 1999-2007 period, the Greek illegal economy averaged 27.5 percent. Topping the list of 162 countries examined in the survey is Georgia, whose shadow economy averaged 65.8 percent in the same period. Yet Greece tops the list in the percentage of illegal immigrants as a part of the total employed population, reaching 4.4 percent, ahead of the US on 3.2 percent and Italy on 2 percent.

In its report, the IEA notes that the European debt crisis has highlighted all these problems in countries such as Greece, Spain and Italy, especially in matters connected to the states’ tax collection and monitoring mechanisms.

The IEA attributes the growth of the illegal economy to the level of tax rates and social security contributions, the tax conscience of each society, the quality of state institutions and authorities – i.e. how corrupt the state mechanism is – the legislation regulating each labor market and the quality of service each state offers, mainly on how wage payment is conducted, i.e. in cash or via bank accounts.