Romania’s underground economy, almost a third of GDP

One of the most serious situations in the EU, according to the European Commission’s data.

Although important, the 4.4 per cent drop in the underground economy, a drop registered in the last 10 years in Romania, leaves Romania with untaxed transactions equivalent to almost a third of GDP, one of the most serious situations in the EU, and significant revenue losses for the state. Thus, the underground economy represented 29.1 per cent of GDP last year according to the European Commission data, compared to 33.5 per cent of GDP in 2002, a report recently published by the Institute of Economic Affairs (IEA) shows. During the same period, Romania’s GDP, expressed in current dollars, grew more than threefold, from USD 46 bln to USD 170 bln, the IMF data shows, Medifax reports.
At the same time, the IEA report points out that in 1999 Romania’s underground economy was equivalent to 34.3 per cent of GDP. At the same time, Romania’s situation is comparable to that of other Eastern-European states such as Bulgaria, Hungary, Poland or the Baltic States, but also to that of Greece, a country that has been in recession for the last six years.
In the last 10 years the underground economy in Romania dropped mainly as a result of preparations to join the EU and of the rapid expansion of electronic payment services. In Belgium the underground economy dropped by 5.2 per cent during the analyzed period, from 22 per cent to 16.8 per cent of GDP, while in Italy the phenomenon dropped from 26.8 per cent to 21.6 per cent of GDP. By promoting electronic payments and discouraging cash transactions Sweden lowered its underground economy by 4.7 per cent of GDP in the last 10 years, from 19 to 14.3 per cent.
The main general directions for action recommended by experts are encouraging electronic payments, hiking payment conformation and a better implementation of the law. The data offered by Professor Schneider and the A.T. Kearney consultancy company, data quoted in a recent Visa Europe report, shows that untaxed economic activity and unregistered labor are dropping in Eastern-European states, while the economic crisis has provoked the perpetuation of the phenomenon in the south of the Euro Zone and has hampered for a period the efforts of rich western and northern European states where the downward trend in the underground economy has returned only recently.

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