Illegal economy nearly halved
IMF highlights the significant improvement in bringing shadow transactions to light
The illegal economy recorded a significant decline in Greece from 2013 to 2021, excluding the year of the pandemic in 2020, according to a report by researchers at the International Monetary Fund.
According to the report, the shadow economy strengthened at the height of the debt crisis, reaching 30% of gross domestic product in 2013. The increase is attributed to the severe recession, the deterioration of tax incentives and the further weakening of the payment culture. From these levels, the shadow economy fell to 16% of GDP in 2021.
There are also significant regional variations in the reduction of the shadow economy, ranging from 5% of (local) GDP in Western Macedonia, to 18% of GDP in Crete. More generally, the decrease is greater in Attica and the islands, and smaller in more remote parts of the mainland.
According to the International Monetary Fund researchers, this shrinking of illegal money is also reflected in the increase in tax revenue by 4% of GDP.
Moreover, as the IMF analysts note, the European Commission recently found that the value-added tax gap (i.e. the difference between actual and potential VAT revenue) in Greece has decreased by more than 16 percentage points as a percentage of total tax revenue between 2013 and 2021, or by about 2 points as a percentage of GDP.
The IMF report further points out that there is a strong correlation between the development of digital infrastructure and electronic transactions and the shrinking of the shadow economy.
The significant reduction of the underground economy in Greece in recent years is thanks to several factors, according to the IMF: The enforcement of stricter regulations against financial crime and tax evasion; greater flexibility in the labor market, such as in working hours; increased incentives to officially report irregular activities; significant progress in digitalization, including improving infrastructure and improving digital public services, that has helped integrate the self-employed; and the modernized employment information system, which has curbed undeclared labor.
