engleski

Determinants of the unofficial economy in Croatia

comprised by the official monitoring systems established for purposes of tax collection and compilation of macroeconomic statistics. The existence of the unofficial economy has a significant influence on the official economy, especially in terms of public finance developments. Direct negative effect is revealed in the decreased ability of the government to collect taxes from economic agents while indirect effect is predominantly concealed in the inability of official statistics to accurately measure economic activity. The trends in the unofficial economy can be explained by various determinants. Theoretical causes of the shadow economy are burdens on the official economy, quality of public sector services, tax morality and government controls, labour market conditions and other structural factors. According to recent empirical researches the most significant determinants influencing growth of unofficial economy are: increase in tax burden (including social contributions), reduction in quality of public services and weak labour demand in the official sector. The aim of the paper is to empirically test the impact of various determinants of unofficial economy for Croatian economy in the period 2000-2010. Hypothesis of the paper is that the most significant determinants of unofficial economy in Croatia were tax burden and labour market conditions. Paper uses two sets of results on the estimation of the size of unofficial economy in Croatia: MIMIC approach and the exhaustiveness of national accounts method. In econometric models as variables which could explain the trends in unofficial economy, various indicators of the intensity of regulations, taxes and labour market conditions are used. Type of relation and significance of each of the individual determinant found by empirical research could be used in the formulation of economic policy oriented to the reduction of the unofficial economy in Croatia.

Unofficial economy; Tax evasion; Institutional environment; Croatia

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