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Portugal's Rising Unobserved Economy Share in a Single-country Study

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  • Óscar Afonso
  • Nuno Torres

Abstract

We estimate that the Unobserved Economy (UnEc) share in Portuguese GDP rose to a maximum of 34.37% in 2022. The results suggest that cutting the tax burden and improving the efficacity of social benefits could reduce UnEc and foster inclusive growth. The rising UnEc share MIMIC estimates found in our single-country study, with variables suited to Portugal, contrast with the downward trend (from 22.2% in 2003 to 16.5% in 2021) in the MIMIC multi-country study by Schneider (2021), who uses different variables - mostly reflecting the economic structure of advanced economies - and does not report if and how country heterogeneity is dealt with. Compared to other recent single-country estimates for the European Union periphery, Schneider (2021) also underreports the UnEc share of (at least) Greece, Poland and Lithuania. Thus, we recommend that authorities prefer UnEc single-country estimates in their analysis and policy design and be aware of mentioned issues in multi-country results.

Suggested Citation

  • Óscar Afonso & Nuno Torres, 2024. "Portugal's Rising Unobserved Economy Share in a Single-country Study," Prague Economic Papers, Prague University of Economics and Business, vol. 2024(5), pages 565-598.
    • Handle: RePEc:prg:jnlpep:v:2024:y:2024:i:5:id:873:p:565-598
    DOI: 10.18267/j.pep.873
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    References listed on IDEAS

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    1. Friedrich Schneider & Robert Klinglmair, 2004. "Shadow economies around the world: what do we know?," Economics working papers 2004-03, Department of Economics, Johannes Kepler University Linz, Austria.
    2. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    3. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    4. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    5. Friedrich Schneider, 2000. "Illegal Activities, but Still Value Added Ones (?): Size, Causes, and Measurement of the Shadow Economies all over the World," CESifo Working Paper Series 305, CESifo.
    6. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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    Keywords

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    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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