Analytics, Economics, Education and Science, EU – Baltic States, Forum, Legislation, Shadow economy

A. Buehn and F. Schneider.

Latvian Finance Ministry has come with a splendid idea: to make a review of country’s shadow economy. The conference was organised on the 1^st of October in the hotel “Monika” in Riga’s downtown. Public interest to the conference was extremely high revealing both the importance of the topic and Mr. Schneider’s lecture.

Some questions that were touched upon at the conference were really interesting, other were hanging in the air for consideration, in order to find out how to get out of a serious problem:

Who is afraid of shadow economy?

The rhetoric of the question is evident; however in the modern developed world, according to prof. F. Schneider and Dr. A. Buehn, the shadow economy level in GDP is about 14 per cent. The highest level at present (over 15 per cent) is in Norway, Sweden, Belgium, Portugal, Spain, Italy and Greece (in the last two countries it is over 20 per cent). The present crisis made a severe impact on increasing shadow economy share in GDP.

The lowest level in the world (somewhere about 10 per cent, which is regarded as “acceptable”) is in the US – about 8 per cent; Switzerland – 8.3; Austria – 8.7; Japan – 9.7 and New Zealand – 9.9. May be the American “wild West” type of economy is not that bad after all, compared to “social market economy-type” in the European Union?

What to do with the statistics?

F. Schneider.

All presentations from the Latvia side have been rotating around commenting the “dreadful statistics” about Latvian shadow economy (A. Sauka, from Riga Economy High School; D. Tomase, from Latvian Central Statistic Office, etc.). Not all the statistics in these presentations have been consistent: quite often initial slides were even contradictory to the concluding or to that of other speakers. But most worrying was the main statistics’ deficiency, i.e. it did not show the way out of the existing abyss. That is, how to reduce its share and how to increase revenues for public good.

Other worries abound, e.g. from the country’s revenue service and statistical bureau: they do not know what could the remedy in order to reduce the burden to the state budget. However, the general public seemed getting used to it: for the last seven years Latvian shadow economy’s share was over 30 per cent, reaching about 40 per cent this year, according to the country’s Prime Minister introductory remark at the conference.

What can be done?

However, the conference’s practical outcome have been rather modest: the conference participants , so to say, “reflected facts” instead of revealing practical steps to reduce (if not eradicate) the negative impact of shadow economy on society. May be this impact is not that dangerous? The discussion did not take that way of deliberations…

To my mind, the recipe is both solid and simple: to make a national development “model”, so that all economically active people (that of SMEs, first of all) are engaged in a “recognizable” business from which to calculate public revenues. Unless there is no such an evident model in Latvia, the shadow share in economy – that is “unaccountable business” – will be always there to stay. Rather disappointing outcome…