What is the extent of the shadow economy in Serbia?

Abstract

There is an extensive literature on the shadow economy and the methods used to estimate it, but a limited amount that applies to Serbia. This chapter presents recent estimates of the shadow economy in Serbia using three methods. The first is the MIMIC method, a modelling-based approach covering Serbia and ten other Central and Eastern European countries between 2001 and 2010. The second is the Household Tax Compliance (HTC) approach based on macroeconomic data for Serbia for 2010. The third method is based on the data obtained from the representative survey of registered businesses and entrepreneurs in Serbia. This survey was the basis for estimating the extent of the shadow economy in the sector of businesses and entrepreneurs for the two main types of informal activity, illicit trade in goods and undeclared work. The methods used differ in their coverage of the shadow economy in terms of institutional sector, form of shadow economy, and methodology. The MIMIC method has the broadest coverage since it covers all institutional sectors and all forms of the shadow economy. The HTC method estimates only those forms of the shadow economy that can be identified on the basis of household income and consumption data, while estimates based on the survey focus on the most important forms of the shadow economy among business entities. In addition to the shadow economy, this chapter also estimates the tax evasion gap for the most important types of tax in Serbia: value added tax (VAT), social security contributions, and personal income tax.