April 14, 2009

Shadow economy in Europe looks robust

The underground economy in Europe is likely to grow this year while the mainstream economies falter, an Austrian economist said.

Friedrich Schneider of the Johannes Kepler University in Linz, Austria, said the so-called shadow economy which relies on cash deals to avoid taxes, would grow up to 0.9 percent in Ireland, Britain and Spain this year, the EU Observer reported Tuesday.

The shadow economy ranges in size from 10 percent of the official gross domestic product in Scandinavia and Northern Europe to about 57 percent of the economy in Ukraine and about 68 percent in Georgia. While it subtracts from the GDP, the shadow economy provides funds for extras, such as television sets, and tends to increase people's well-being, Schneider said.

It can be observed by watching construction sites, where there are more workers on weekends than weekdays, when those with jobs put in hours for off-the-books spending money.

The study covered 14 European countries, but even in those not included, the shadow economy is likely to grow the same if not bigger, Schneider said.