Macroeconomic Aspects of the Grey Economy - The Case of Macedonia

Abstract

Compared regionally, Republic of Macedonia has one of the highest levels of grey economy activity. According to some estimations, it accounts for about 40% of GDP. This high level of grey economy has a direct influence to the main economic indicators, categories and instruments for macroeconomic regulation: GDP value cannot be precisely measured, there are problems in formulating and realization of macroeconomic policy instruments (fiscal policy, monetary policy, social policy, foreign-trade policy), etc. Because of its high value, grey economy is challenging and serious danger for macroeconomic planning and regulation. By using qualitative, descriptive, statistic and comparative methodologies, this research attempts to locate causes, consequences and the scope of grey economy in Republic of Macedonia. It also presents different ways for measurement of the size of grey economy in the Republic of Macedonia and understands the basic characteristics of the Macedonian case in order to present well‐grounded policy recommendations. The main finding (conclusion) of the paper is the fact that the grey economy in The Republic of Macedonia is a multifaceted phenomenon and the most efficient manner to remove the causes for the occurrence and presence of the grey economy is the improvement of the institutional frame in the country. There is a need for directly focused Government measures that would precipitate the integration of the grey economy in the formal sector, once the right conditions are put in place. The recommendations that this paper promotes will head exactly in that direction. The main recommendation is directed towards activities and measures of the authorities for preventing and removing the reasons of grey economy appearance and punishment of the consequences of this national economy “evil”. Another recommendation is for the Government to increase the speed for redefining (changing) its role on the market. Although there are noticeable signs that the situation has been changing, there is a need for widening the awareness of all business players for the necessity of playing by the rules as well as for enforcing the institutional framework, legal order, moral values and the motivators of the country’s functional economy.