Content area
Full text
The shadow economy encompasses all areas of economic activity, which are officially considered inconsistent in comparison to the ideological prevalent form of economic organisation. The definition of 'shadow' or 'underground' economy is not firmly fixed but subject to change and varying criteria. There is a whole range of measuring methods adopted according to various principles. The text shows the connection between the shadow economy and economic policy, what stimulates growth of the shadow economy and what measures can be taken to influence the way it develops. After a short introduction, definition and measuring are explained. Section 3 is dedicated to the situation in Croatia, where various methods are explained followed by section 4 which explains the links between the shadow economy and economic crisis. The article finishes with conclusions and recommendations for improvement.
Keywords: 'shadow' or 'underground' economy; tax evasion; economic development; Croatia; tax culture
JEL classification: E6, H2, I3
1. Introduction
The shadow economy includes economic activities which are considered inconsistent in comparison to the ideological prevalent form of economic organisation. The informal economy encompasses all activities that are formally legal but ideologically suspect; hence there is an official tendency to discriminate amongst them and give them an inferior status. Activities in the 'hidden' economy consist of undeclared legal production of goods and services, production of illegal goods and services, and concealed income in kind. The first is the largest component of the shadow economy and covers productive activities that are quite legal in themselves but which are concealed from public authorities to avoid taxes and similar charges.
The definition of the 'shadow' or 'underground' economy, as is the case with so many economic phenomena, is not firmly fixed but subject to change and varying criteria. Thus there is the legal one (illegal economy ), the moral one (its illegal nature and the fact that it contravenes the accepted rules of business), the institutional one (income realised through this kind of operation is not included in routine record-keeping and statistics), the quantitative one (those economic activities which could be measured in some way but have so far never been analysed), and finally, the ideological one, which depends, to a great extent, on the prevalent economic system in society and corresponding economic policy.
...