Prague Economic Papers 2024, 33(5):565-598

Portugal's Rising Unobserved Economy Share in a Single-country Study

Óscar Afonso ORCID..., Nuno Torres ORCID...
University of Porto, Faculty of Economics, and CEFUP, Porto, Portugal

We estimate that the Unobserved Economy (UnEc) share in Portuguese GDP rose to a maximum of 34.37% in 2022. The results suggest that cutting the tax burden and improving the efficacity of social benefits could reduce UnEc and foster inclusive growth. The rising UnEc share MIMIC estimates found in our single-country study, with variables suited to Portugal, contrast with the downward trend (from 22.2% in 2003 to 16.5% in 2021) in the MIMIC multi-country study by Schneider (2021), who uses different variables - mostly reflecting the economic structure of advanced economies - and does not report if and how country heterogeneity is dealt with. Compared to other recent single-country estimates for the European Union periphery, Schneider (2021) also underreports the UnEc share of (at least) Greece, Poland and Lithuania. Thus, we recommend that authorities prefer UnEc single-country estimates in their analysis and policy design and be aware of mentioned issues in multi-country results.

Keywords: unobserved economy, MIMIC model, economic growth, Portugal, European periphery
JEL classification: C39, H10, O17

Received: November 16, 2023; Revised: May 31, 2024; Accepted: July 10, 2024; Published: October 31, 2024  Show citation

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Afonso, Ó., & Torres, N. (2024). Portugal's Rising Unobserved Economy Share in a Single-country Study. Prague Economic Papers, 33(5), 565-598
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