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The Official Statistics Approach to an Estimate of the Size of the Underground Economy

This paper shows the results of an estimate of the size of the grey economy in Croatia in the 1998-1999 period according to industries and forms of the grey economy. The basic methodology used in the estimate of the size of the grey economy is the Eurostat method. This approach provides a framework for the estimate of the underground economy (UE) that is particularly well adapted for the countries in transition. The estimate is grounded on the use of comparative data about employment pursuant to official (administrative, civil service) sources, and also based on data derived from the Household Labour Force Survey (HLS), and many other additional sources of data. In line with international recommendations, special attention is also attached to various necessary methodological variations and adjustments of scope in order to obtain, according to international methodology, a comparable value of the total Gross domestic product (GDP) created in the Republic of Croatia. A special category shows GDP created by illegal activities. According to the results of the estimate, the total grey economy in the Republic of Croatia during 1998 came to 12, 248.2 million kuna or 11.1% of the official gross added value calculated according to base prices or 8.9% of GDP that, apart from added value according to base prices, also includes all taxes and subsidies on products that are not classified according to industry but are shown at the level of the national economy. In 1999, the grey economy amounted to 11, 508.3 million kuna, which is 10.12% of gross added value according to base prices, or about 8.1% of official GDP. The authors consider this estimate conservative, that is, only the lower limit of the estimate. According to these results, the dominant form of the grey economy in the Republic of Croatia is income deriving from unreported labour. Official GDP needs to be corrected by the magnitude of the overall grey economy. Many economic indicators necessary for the running of economic policy will change after the inclusion of the UE.

Underground economy; labour force method; Eurostat approach; exhaustiveness of the national accounts

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