SELDI Issues Regional Assessment Report on Hidden Economy and Good Governance in Southeast Europe

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The anti-corruption and good governance coalition Southeast European Leadership for Development and Integrity (SELDI) issued the Hidden Economy and Good Governance in Southeast Europe Regional Assessment Report. The report examines the key drivers of the hidden economy and its impact on the overall economy in SEE, and in particular the employment, social and fiscal sectors. It focuses on the links between hidden economy and corruption, especially the administrative corruption, related to VAT drain, tax payment evasion, social security payment evasion, and “speeding up” business related services. The report finds that hidden economy in SEE remains wide-spread, perpetuates informality, which is linked to corruption, and denotes a substantial gap between formal and informal institutions. It considers the gap to be both due to underdeveloped formal market institutions, and the lack of coherent enforcement of rules, often related to corruption. Given the immense diversity of the scale of the phenomenon (19 % in Croatia and 81 % in Kosovo), its prevailing patterns (no written contracts in Turkey, non-payment of health care contributions in Kosovo, envelope wages in Macedonia and Bulgaria, non-formalized business in Albania) and statistical estimation of the hidden economy in GDP across Southeast European countries, the report highlights that any successful counter-measures would require tailor-made policies and sequencing of reforms. Finally, the report emphasizes that working in the hidden economy in SEE is often socially embedded, culturally and educationally predetermined, and not simply a matter of a rational choice, and therefore, any effective anti-hidden economy policy should not be purely economic or fiscal, but a comprehensive social policy. The full report is available here.

Source: SELDI

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