The non-observed economy in the national accounts: New evidence for EU and EFTA Member States

Abstract

Exhaustive GDP estimates are vital for an accurate perception of the economy, international comparability, economic research and policymaking. Using a novel data source – the GNI Inventories submitted to Eurostat in the context of GNI data verification, this paper provides new and more extensive evidence on the adjustments for the non-observed economy made to GDP and GNI estimates in EU and EFTA countries. Adjustments range between less than 1% and over 27% of GDP, illustrating marked differences across countries. This comparative analysis demonstrates that this reflects not only differences in undeclared activity, but also in national accounts data sources and methods, despite common assumptions regarding the nature and structure of fraud and institutional background. These findings highlight the potential and limitations of these data for policies tackling tax evasion and the need for further cooperation with researchers and national authorities in measuring the level and structure of tax evasion.