Latvia's shadow economy is not declining

May 19, 2015
In 2014, Latvia's shadow economy practically remained unchanged compared with the previous year, while declining in Lithuania and Estonia. Such a conclusion has been drawn in the study of the Shadow Economy Index for the Baltic States, which was published on May 13, 2015. The study was carried out by the Center of Sustainable Business at SSE Riga in cooperation with SEB.

In terms of the share of the gross domestic product (GDP), Latvia's shadow economy accounted for 23.5% in 2014. Compared with 2013, Latvia's shadow economy has only dropped by 0.3% of GDP. Conversely, Estonia and Lithuania's shadow economy accounted for 12.5 - 13.2% of GDP in 2014, and the long-term trend of a gradual decline of the shadow economy has persisted in both countries. According to the findings of the study, the shadow economy of the neighbouring countries has declined by about 2.5 - 2.8% compared with 2013.

"We can therefore conclude that in 2014, Latvia's shadow economy was twice as high as that in the neighbouring countries," says Dr. Arnis Sauka, the author of the study and Assistant Professor of SSE Riga.

The SSE Riga Shadow Economy Index is estimated annually based on surveys of entrepreneurs in the Baltic countries. The Index combines estimates of misreported business income, unregistered or hidden employees, and unreported "envelope" wages to estimate the shadow economies as a proportion of GDP.

The authors of the research are Dr. Arnis Sauka, Director of the Center for Sustainable Business at SSE Riga, and Dr. Tālis Putniņš, Assistant Professor at SSE Riga. The SSE Riga Shadow Economy Index for the Baltic States is commissioned by the Center for Sustainable Business at SSE Riga with the financial support of SEB.

To read the entire study in English.

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