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Shadow economy costs €454bn says economist

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Shadow economy costs €454bn says economist
Jenny Downing/Flikr
11:36 CEST+02:00
Shadow economies could be costing the EU up to €454 billion in tax losses according to Linz University economist Friedrich Schneider.

Speaking to the Financial Times, Professor Schneider from the Johannes Kepler University Linz, said that although measures could be taken to crack down on the shadow economy, it could not be completely dismantled.

“One could crack down 20 to 30 percent on shadow economy with clever policies but not more,” he said.

Tax losses of €454 billion would equate to 8.6 percent of total annual tax revenue, and national losses range from 33 percent of total revenue in Bulgaria to 4.4 percent in Austria.

Most of the losses are a result of undeclared work but about a third are thought to be from cash heavy businesses under-reporting their sales.

The figure is the latest of several estimates of tax losses due to shadow economies, a number that is hard to pin down due to the illicit nature of the transactions.

An earlier report released by Professor Schneider in January stated that the estimated EU tax losses from the shadow economy in 2009 was €864 billion.

In 2013, some experts estimated the losses could have exceeded €1 trillion. The EU economic commissioner Pierre Moscovici said earlier this month that EU member states should crack down on those who avoid paying VAT after a study suggested €168 billion was lost in 2013 this way.

Scandinavian countries, where cash payments have significantly fallen, are also less likely to see wages paid in cash in comparison with central and eastern European countries.

In comparison Britain has seen a rise in the number of notes in circulation, which authorities say is due in part to tax evaders holding back large amounts of cash that are then released into the economy.

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