Latvian shadow economy decreases in 2015: study

The size of Latvia's shadow economy decreased somewhat last year, according to the latest Shadow Economy Index for Baltic Countries presented at the Stockholm School of Economics on Thursday.

The study reveals that over the past year, Latvia's shadow economy contracted at a faster rate than in Lithuania and Estonia, decreasing by 2.2 percentage points to 21.3 percent of GDP.

The figure still remained higher than in the two other Baltic states, with illegal businesses accounting for 15 percent of Lithuania's GDP and 14.9 percent of Lithuania's economy.

"Although the reduction of the Latvian shadow economy has basically been achieved thanks to decreased amounts of unreported business revenue and undeclared wages, these figures still can be regarded as high in Latvia," said Dr. Arnis Sauka, an associate professor at SSE Riga and a co-author of the study.

The survey shows that unreported income or tax evasion accounts for the bulk, or close to 45 percent, of Latvia's shadow economy, and unregistered businesses make up 5 to 7 percent of all enterprises operating in Latvia.

Undeclared pay, or "wages in envelopes" make up the second biggest part of Latvia's shadow economy, although the share of undeclared wages has been declining in Latvia since 2010 and the trend continued also in 2015.

Traditionally, the highest rate of illegal business activity was recorded in Latvia's construction sector where 40 percent of operations take place in a "grey area," which is two times more than in Lithuania and Estonia. Endit