Spain’s Underground Economy Almost 29% of GDP (Survey)

The study by the Spanish Treasury Inspector Domingo Carbajo and economics professor Santos Ruesga encompasses three manifold goals. As a first objective, it lays out the differences and relationships between the so-called “shadow economy” and the “fiscal fraud”. Both social activities are closely related, but they also have different realms, origins and meanings. On the second hand, the article also lays out several statistics regarding the volume of such social undertakings in Spain. And last, but not least, the authors state several tools and programs to reduce the volume of both activities, putting down the view that the only solution to their very own existence is to intensify repressive instruments and establishing a more comprehensive a positive approach to minimize their effects.

According to the researchers, the most recent methodologies which estimate the volume of black economy are “causal” methods, which analysis the monetary circulation. Its main idea is that the black economy transactions are all made through cash. Therefore the most effective measures in this context may be either remove from the most valuable currencies in circulation, 200 and 500 euros banknotes, which at the beginning of the crisis accounted for 71.2% of total circulating in Spain and currently have risen to 76.72 % or encourage de use of card payments characterized by its traceability and easy control.

The study provides assessments of Europe´s black economy rating it around 18% of European GDP (in southern European countries estimations reach the 25%) Spain is the country with the highest black economy (6.3% per year since 2003) reaching 28% of GDP in 2013.

The results of the study show that in Spain there is a direct relationship between the systemic crisis and increases the black economy and tax evasion. Spain also is the Southern European country with the highest estimated loss of incomes in tax collection (-2.1%).

The authors of the study remark that in Spain there are no long term coherent policy measures to combat the black economy and tax evasion, however the study estimations show that each additional point in the black economy, the tax revenues collection decreased 0.35 points. This shows that between 2003 and 2011 the Spanish tax collection decreased by 12.2%.

In recent years, the Spanish fiscal crisis and the tax collection problems have led to sponsor a purely repressive and negative fight against tax fraud. Benito Ruesga states that “The fight against tax evasion and the black economy requires a proactive vision of cost – benefit and not purely a repressive vision as well an international cooperation.”

In this context, one of the most effective measures would be remove the most valuable currencies in circulation: 200 and 500 euros banknotes. At the beginning of the crisis they accounted for 71.2% of total circulating in Spain and currently have risen to 76.72 %. Such approaches should be accompanied by the promotion of electronic payment methods, avoiding regulations that make consumers pay more for using this payment method and through fiscal incentives as the ones implemented against the black economy in Germany or in favour of the use of cards in Asia (Korea) and Latin America (Argentina).

As a result, the researchers conclude that a greater use of cards and other electronic payment methods will not only reduce the black economy, but will raise GDP and employment and encourage the economy. Therefore, these measures should be studied more in depth by European legislators (Council and European Parliament) especially in the latest European regulation proposal on payment methods. These regulations can create more problems than the ones they attempt to solve. To avoid this, we should be subject to a greater consensus by the various European political forces.

The study findings were presented at the “23rd Tax Inspector Congress” celebrated in Malaga (Spain) the18th of October 2013”. The full study will be presented in México in the “Hispano-American Socioeconomic Congress at the National University of México” 4-6 of December.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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