Identifying the gray sector could increase Bulgaria’s GDP by more than a third, according to a study by a subcommittee at the European Parliament, writes Kapital magazine, quoted by Rador.

According to a report prepared for the FISC tax subcommittee of the European Parliament, the share of “underground” activity in Bulgaria is the highest among EU countries. This means that, according to preliminary estimates of GDP, economic activity worth about 55 billion leva last year was overlooked by public authorities and official statistics.

Inefficient institutions, corruption, weakness in the rule of law and complex bureaucratic procedures are considered the main prerequisites for the development of the underground economy. And this, in turn, is associated with weaker economic development and is an obstacle to the effective distribution of state resources.

The numbers are, of course, conditional, since there cannot be official data on the size of the underground economy by definition. However, the authors, Professor Friedrich Schneider of the Johann Kepler University in Linz and Dr. Alban Aslani of Coventry University in London, specialists in the study of the informal economy, use different methods and mathematical models to estimate the approximate size of this economy. phenomenon.

In principle, the so-called “underground” economy includes both illegal and legal activities, which, however, are carried out unofficially, most often for the purpose of evading taxes or bureaucratic procedures. However, the study excludes purely criminal activities (such as drug trafficking) and focuses exclusively on laws that create added value but remain hidden from the state.

Bulgaria always has the highest percentage of the shadow economy in the EU

Over the years, Bulgaria has consistently had the largest share of the shadow economy in the EU as a share of GDP, the study shows. However, albeit very slowly, it has been gradually decreasing since the beginning of the century, and by 2019 it was already slightly more than 30% of GDP.

However, with the onset of the pandemic in 2020, the trend is changing – a sudden economic downturn and rising unemployment are increasing the share of the informal economy. Although this is the case across Europe, in 2020 Bulgaria had the second fastest growing informal sector after Croatia.

And as it has continued to grow since then, by 2022 the progress of the last 15 years has been erased and the share of the gray sector in Bulgaria is once again above 33%, returning to the highs of 2006.

Overall, the gray sector in the EU has had similar dynamics over the years, falling from around 20% in 2009 to just over 16% in 2019. But the economic shock from the pandemic leads to the strongest growth in the last 20 years – with 1.69 points. The study also shows that the informal sector accounts for a larger share of the economy in Eastern European countries such as Bulgaria, Romania, Poland, the Czech Republic and the Baltic states than in Western European countries.

Indirect taxes are the factor that has the greatest weight for the existence of the shadow economy in Bulgaria, and this weight is one of the highest among the countries studied. The next major factors lurking in the labor market are unemployment and self-employment, the report said. Despite its relatively small importance compared to other factors, the growth of the Bulgarian economy has the greatest weight compared to the other countries studied.