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Undeclared Economy in Croatia during the 2004–2017 Period: Quarterly Estimates Using the MIMIC Method


  • Josip Franic

    (Institute of Public Finance, Zagreb, Croatia)


Even though Croatia is among the most active EU countries when it comes to tackling undeclared economic activities, not much is known about the effectiveness of numerous policy measures introduced since joining the EU. As there is no systematic approach toward quantification of the undeclared economy in the newest member state, this paper fills the gap by presenting a tailored and robust procedure based on the Multiple Indicators and Multiple Causes (MIMIC) method. The methodology developed is then applied to assess the magnitude of the phenomenon in Croatia for the 2004–2017 period. The analysis reveals that the undeclared economy in Croatia has remained rather stable during the last decade and a half, with its value added ranging between HRK 24.1 and 26.9 billion. Accounting for 7.8 percent of the total GDP in 2017, undeclared undertakings represent a significant obstacle, which should therefore be systematically addressed. What is more, the findings indicate a rising trend, thus challenging the efficiency of the current policy approach by the Croatian government.

Suggested Citation

  • Josip Franic, 2019. "Undeclared Economy in Croatia during the 2004–2017 Period: Quarterly Estimates Using the MIMIC Method," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 21(1), pages 5-46, June.
  • Handle: RePEc:iez:survey:ces-v21_1-2019_franic

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    References listed on IDEAS

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    Cited by:

    1. Josip FRANIC, 2020. "Why workers engage in quasi-formal employment? Some lessons from Croatia," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 11, pages 94-112, December.
    2. Franić Josip & Kojouharov Anton, 2019. "Informal payments by patients in Croatia: benign custom or detrimental residue from socialism?," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 5(2), pages 49-63, December.

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    More about this item


    undeclared economy; non-observed economy; MIMIC; labor input method; Croatia;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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