Economic security

On average a shadow economy increases the gross national product of a country, but state institutions are affected as people don’t pay taxes and social contributions, Dr. Friedrich Schneider, an economist at the University of Linz, told RT.

With high taxes, rising unemployment and social insurance contributions more Austrians prefer to move into the shadow economy which is expected to account for around 8 percent of GDP this year.

“A shadow economy is not a bad thing. It creates additional goods and services. Value added is also created. A big loser is a state because of taxes and social security contributions. Because by definition a shadow economy worker doesn’t pay any taxes and social security contributions. A shadow economy is not simple black and white, it has all shades of grey in between,” Dr. Friedrich Schneider claims.

‘All shades of grey’: Who wins and loses in shadow economy?