Latvian shadow economy decreases in 2016: study

Latvia saw its shadow economy decrease by 1 percent last year to 20.3 percent from 21.3 percent a year before, it was announced Wednesday.

Arnis Sauka, an associate professor at the Stockholm School of Economics in Riga (SSE Riga), said during the presentation of the annual Shadow Economy Index for the Baltic Countries that unreported business income and unreported or the so-called "envelope wages" made up the largest share of the shadow economy in 2016.

The share of unreported business income in Latvia was 18.5 percent last year, as compared to 11.7 percent in Lithuania and 8.3 percent in Estonia. In Latvia, however, the figure has been dropping at a faster rate than in the two other Baltic countries.

Sauka indicated that the general trend was positive as the shadow economy in Latvia has been contracting for three consecutive years already, especially given that in 2009 its proportion reached 36.6 percent of GDP.

Sauka believes Latvia should aim for the average level of the EU where the proportion of shadow economy is 14 percent of GDP.

Until now, the shadow economy has mainly been fought with punitive methods, but the time has come to look for other solutions, Sauka said.

Latvia still has the highest share of shadow economy against GDP among the three Baltic states. The proportion of shadow economy in Lithuania was 16.5 percent and in Estonia 15.4 percent in 2016. Endit