Prefer Your Economy in the Shadows? Try Turkey, Mexico, or Estonia

The Organization for Economic Cooperation and Development (OECD) recently released a study on the “unregistered economies” of its various member states. According to the study, the nation with the largest portion of its economy in the unregistered territory was Turkey, followed closely by Estonia and Mexico. 

The Organization for Economic Cooperation and Development (OECD) recently released a study on the “unregistered economies” of its various member states. According to the study, the nation with the largest portion of its economy in the unregistered territory was Turkey, followed closely by Estonia and Mexico. 

How bad does the shadow economy need to be in one’s nation to make the top of the list? In Turkey, the OECD’s study found, the ratio of unregistered economy to legitimate gross domestic product (GDP) was a staggering 28.72 percent. Lest one think, the study’s influence was by outside forces keen to cast the Turkish economy in a bad light, note that Ceyhun Elgin of the Economy Department at Istanbul’s Bosphorus University authored the study. 

Elgin found that Estonia and Mexico were not fairing much better. In the case of Estonia, the shadow economy equates to 28.7 percent of its official GDP, while Mexico’s accounts for 28.1 percent. On the other end of the spectrum, the United States had the best record and the smallest unregistered economy, with just 7.95 percent. Switzerland came in second best at a mere 8.07 percent.  Austria, Luxembourg, and Japan round out the list of the top five nations with the smallest unregistered economy, while Italy and Greece were close to the top of the largest shadow economies behind Turkey, Estonia, and Mexico.

According to the Daily News, the OECD’s report revealed that the world average share for shadow economies was about 22 percent. That was determined by examining 161 countries that also happen to be members of the OECD. Put into that perspective, while Turkey’s numbers are shocking at first blush, it becomes apparent that they are only a few points above average. 

Unfortunately, Turkey has shown no real effort to improve the share of its economy that remains unregistered over the last ten years. The OECD predicts that the unregistered economy will remain above average in Turkey for the near future, and may actually increase over the next decade. However, put into an historical perspective, the numbers have actually improved quite a bit. In 1950, Turkey’s shadow economy equated to 50 percent of its official GDP. That number had plummeted 20 points to about 30 percent in the 1990s, and dropped slightly lower in the first decade of the new century.  

However, Turkey has struggled to get its numbers any lower. It has consistently hovered between 27 and 29 percent since the 1990s. 

The unregistered economy arises in several ways. Tax breaks can cause this, but is more commonly the result of unregistered employment, online shopping errors, illegal trade, and unpaid overtime wages. Many companies contribute to the problem by failing to officially register with the government in an effort to cut expenses.

To reduce the shadow economy, Elgin suggests governments should consider securing solid growth in the registered economy. Not only will this make the unregistered economy a smaller percentage of the official GDP, it may also remove some of the incentive for engaging in the shadow economy in the first place.