Estimating the Shadow Economy in Bulgaria: Survey Evidence for 2023

Market transition in Bulgaria experienced several periods during which a variety of political, social, and economic conditions have facilitated the processes for market reforms and social transformation since 1990. It was expected that EU accession processes (up to 2006) and especially the full integration of the country would substantially reduce the scope of grey economy operations. Nevertheless, the mainstream public opinion and scholarly research indicate the resilient nature of this phenomenon, which still keeps a notable share in economic activities, especially in particular business sectors. The paper presents empirical results from a questionnaire survey conducted in 2023 among business representatives in Bulgaria having expert, managerial, or ownership positions within the firm. The study provides evidence on selected issues related to the shadow economy in Bulgaria after two years of political instability with a series of temporary governments. For example, the business sectors with the greatest extent of the shadow economy spread indicated by the respondents are construction (83%); restaurants, coffee shops and similar establishments (81%); tourism, hotels and accommodation services (61%). The average share of underreported turnover is estimated at 38% for the overall economy, but when asked about their branch, respondents evaluate this share on average at 26%. Furthermore, the mean share of employees having an official labour contract but under “hidden clauses” (e.g. additional envelope wages) is evaluated at 19%, along with 7% on average for those employed without a contract. All results show that the phenomenon still has a significant impact on the economic activities in the country; however, further comprehensive exploration is necessary to reveal adequate alternatives for practical policies to be implemented towards limiting the scope of shadow economy operations.