The shadow economy

Activities in respect of which adjustments to national accounts could be made
A1: A producer deliberately does not register in order to avoid tax and social security obligations.
A2: A producer deliberately does not register as a legal identity or as an entrepreneur because he is involved in illegal activities.
A3: A producer is not required to register because he has no market output.
A4: A legal person is not surveyed for reasons such as the business register being out of date or because updating procedures are inadequate.
A5: Registered entrepreneurs may not be surveyed because of the failure of the statistical office to conduct a survey of registered entrepreneurs.
A6: Cross-output is under-reported and/or intermediate consumption is overstated.
A7: Data are either not complete or not collected or not directly collectable and/or data are incorrectly handled.

In general, the inclusion of the shadow economy brings the national income figures for different countries closer together because, except insofar as the Scandinavian countries are concerned, a higher shadow economy tends to be associated with a lower level of national income. There are, however, significant potential anomalies, lack of consistency and lack of clarity in published data. If national income figures are not adjusted for the size of the shadow economy, misleading comparisons between countries will be made. At the same time, when comparing countries, if it is not known whether countries have made adjustments to their official data and allowances are not made for the different adjustments that different countries make, comparisons between the national income performance of different countries will also be flawed. This is even more true, of course, for less developed countries that can have very large shadow or informal economies, the size of which is very difficult to estimate.

Table 25. Adjustment of non-observed economy in national accounts