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THE SIZE AND DETERMINANTS OF THE UNOFFICIAL ECONOMY IN CROATIA

This paper delves into estimating the unofficial economy in Croatia and NMS through national accounts and the MIMIC approach. It identifies determinants, causes, and impacts of the unofficial economy, comparing Eurostat and MIMIC estimates, and discussing econometric tests of its determinants. The analysis covers the period from 2000 to 2011, highlighting the relationship between the size of the unofficial economy, various indicators, and government-related factors. The study concludes with insights on the differences in the unofficial economy among NMS, the role of government expenses, and the importance of improving the institutional framework to reduce the unofficial economy's share.

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THE SIZE AND DETERMINANTS OF THE UNOFFICIAL ECONOMY IN CROATIA

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  1. THE SIZE AND DETERMINANTS OF THE UNOFFICIAL ECONOMY IN CROATIA Prepared by DavorMikulić Zagreb, Semptember2015

  2. Scopeofthepaper Overviewofunofficialeconomyestimatesin Croatia andnewmemberstates (NMS) Exhaustivenessof national accountsresults MIMIC approachestimates Identificationof UE determinants

  3. Non-exhaustivenesstypes (national accoutsapproach): N1 – Deliberately non-registered (underground ) N2–Illegal producers N3 – Not required to register N4 – Legal persons not surveyed N5 – Registered entrepreneurs not surveyed N6 – Producers deliberately misreporting N7 – Other statistical deficiencies

  4. MIMIC approach (Schneider) Structural model: determine the relationship between an unobservable variable (unofficial economy)and a set of indicators related to UE Indicators: GDP, money incirculation, participation rate Causes: size of government, share of direct taxation, fiscal freedom, business freedom, unemployment rate, government effectiveness

  5. Estimates of unofficial economy in Croatia

  6. Is Eurostat approach conservative?

  7. ComparisonofUEestimates

  8. Unoffical economy and GDPpc

  9. Unoffical economy and corruption

  10. Econometrictestsofdeterminantsof UE in new memberstates Depedentvariable: UE NOE (model 1) and UE MIMIC (model 2) Period: 2000-2011 Panel data – fixedeffects yi,t =α +βXi,t + ei,t (1)

  11. Determinants of the unofficialeconomyineconomic literature Burdens on the official economy; Public sector services; Tax morality and government controls; Labour market conditions; Structural factors.

  12. Causes of unofficial economy in new EU member states and Croatia

  13. CONCLUDING REMARKS • Significantdifferencesin UE in NMS • Exhaustivenessof national accountsresultsinlowerestimateofunofficialeconomyincomparison to MIMIC • Lowervariabilityin MIMIC estimates for individualcountries • Government expenses, as broadest indicator of costs government posed to the official economic units, turned to be more significant than revenues • Improvementinoveralinstitutionalframeworkreducestheshareofunofficialeconomy • Official and the unofficial economy in NMS are substitutes not complements • Impactofeconomicfreedom is unclear

  14. Thank you!☺

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