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How to measure the unmeasurable: Project Grey developing capacities and capabilities for tackling undeclared work

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  • Bejaković Predrag

    (Institute of Public Finance, Zagreb, Croatia)

Abstract

The term “not directly observed” or “the underground economy” refers to those economic activities that should be included in the GDP estimation but which are not recorded in the statistics business surveys or tax and administrative data used in the calculation of the estimates of national accounts because they are not directly observable. The unofficial or informal economy contains that part of the economic activity that is difficult to measure. Thus, in addition to the complex issue of defining the underground production, there is an even more demanding task of measuring it. Hitherto in the literature, various estimation methods of unofficial economy have been proposed and their results differ significantly. The goal of this article is to provide an overview of the various methods of its measurement. The unobserved economy poses estimation problems of economic aggregates that can be differentiated as the total lack of information and the distortion of available information. There is no universal optimal approach applicable to all countries or even to the same country at different periods. In the attempt to limit the underground economy, it is much better to obviate the causes than penalise the consequences. It is necessary to simplify the procedures enabling citizens to formalize their undeclared activities, to provide a tax system that is as stable as possible and a tax and regulatory burden that is as low as possible. What is crucial is the improvement of institutions, professionalization of civil service and removal of the huge impact of politics in the societies.

Suggested Citation

  • Bejaković Predrag, 2017. "How to measure the unmeasurable: Project Grey developing capacities and capabilities for tackling undeclared work," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 3(2), pages 20-38, December.
    • Handle: RePEc:vrs:crebss:v:3:y:2017:i:2:p:20-38:n:3
    DOI: 10.1515/crebss-2017-0007
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    References listed on IDEAS

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    Cited by:

    1. Novkovska Blagica & Dumičić Ksenija, 2018. "Energy Consumption as an Indicator of Hidden Economy: Comparative Analysis," Business Systems Research, Sciendo, vol. 9(2), pages 96-107, July.

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    More about this item

    Keywords

    causal methods; direct methods; economic policy; Eurostat approach; indirect methods; measurement of underground economy;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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