Analytics, Latvia, Shadow economy

More than 42% of respondents told SKDS that overly high taxes were the main factor contributing to the shadow economy in Latvia. 33% said that residents' distrust of the state, for instance, the pension system and social guarantees, was the main reason, while 11% blamed the shadow economy on residents' low integrity.

Other factors, including debts to banks and non-bank lenders, were named by less than 5% of respondents.

"As the elections are drawing near, increasingly often we hear that non-bank lending contributes to the shadow economy in Latvia. Data show otherwise. According to a research done by the Stockholm School of Economics in Riga Professor Arnis Sauka, the share of shadow economy in Latvia last year reached 22% of gross domestic product. In monetary terms, that is approximately EUR 5 bln. On the other hand, the total payday loan portfolio was about EUR 120 mln at the end of 2017, or 2.4% of the estimated shadow economy in the country. It means that even if the industry did not exist at all, it would have no effect on the size of the shadow economy," said the Alternative Financial Services Association's head Gints Aboltins.

Most respondents, 68%, believe that employers choose to pay their employees under the table not because they wish to evade their obligations, but for other reasons - for example, so that their employees would have more cash on hand, because they have no trust in the state and the social guarantees it offers. Far less respondents mentioned other reasons - debts to non-bank lenders (6%) and debts to banks (5%).

SKDS carried out the survey online July 3 to 10, interviewing 1,005 respondents across Latvia.