Shadow economy in Latvia slightly changed in 2014

The part of the Latvian economy in which goods and services are traded without paying taxes, or the so called shadow economy, made up nearly a fourth of the country's GDP last year, according to the latest Shadow Economy Index for the Baltic Countries released by the Stockholm School of Economics in Riga (SSE Riga).

While the share of the Latvian shadow economy declined only slightly, by 0.3 percentage points from a year before to 23.5 percent in 2014, the shadow economies in Latvia's two Baltic neighbor countries, Estonia and Lithuania, continued to contract at a much faster pace in 2014, accounting for 13.2 percent and 12.5 percent of GDP respectively, which was a reduction by 2.5-2.8 percent against 2013, the SSE Riga survey shows.

"We can therefore conclude that in 2014 the shadow economy in Latvia was nearly twice as big as in the neighbor countries," Arnis Sauka, Director of the Center for Sustainable Business at SSE Riga and an author of the study, said at the presentation of the index.

Sauka indicated that although the proportion of the Latvian shadow economy remained virtually unchanged last year, changes appeared in its structure, with undeclared income from business operations, or tax evasion, making up about 46 percent of the Latvian shadow economy.

Although the proportion of undeclared wages has been on decline in Latvia, their share in Latvia's shadow economy reached 36.1 percent in 2014.

Illegal employment was the third largest component of the Latvian shadow economy last year, accounting for 18.4 percent, the study reveals. Endit