Table 1. National-accounts-based estimates for the share of economic underground (hidden) output and informal economic activity in GDP (DOC, 61Kb, English)
Some of the best information on the underground economy comes from… official statistics. GDP estimates for less-developed countries have always included unregistered and barter transactions, and the last decade has seen continuing efforts to improve the "exhaustiveness" in the national accounts of middle- and higher-income countries by including the Non-Observed Economy (NOE). Countries shown in this table have estimated the combined GDP share of the "underground" and "informal" components of the NOE. The shares are below 5% in many highly-industrialised countries, intermediate in Czech and Slovak Republics, and about 15% in Hungary, Poland and probably several Southern European countries, with some higher rates in non-OECD countries. However, the incidence of undeclared work and of losses of tax revenues can be up to twice as high as these figures. The chapter emphasises that labour compensation costs are deductible from the taxable profits of small businesses. Where accurate taxation of small businesses has been established this has made it usually tax-efficient to declare labour costs, favouring the historical transition to a "salaried economy". However, tax authorities in many countries find it difficult to tax small businesses accurately. And where taxes on labour – often, social security contributions - are relatively high, some workers and their employers will prefer to have wages paid so far as possible in cash. Tight regulation of employment can help the authorities to directly enforce labour taxes, but this configuration tends to depress formal employment rates among marginal groups in the labour market.