The impact of the pandemic on the shadow economy: Known knowns
Shadow economy
Fecha: julio 2024
Santiago Lago Peñas
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º4 (July 2024)
Analysis appears to support a favourable evolution of the tax revenue-to-GDP figures and the estimates regarding the size of the shadow economy in Spain. The shock induced by the pandemic led to a spike in inflation, which drove growth in tax receipts to a level that apparently outpaced inflation and real economic growth, albeit the evidence is far from conclusive. The gap in the tax burden with respect to the EU-27 average in 2019 has closed by half. This gap originated from a plethora of special tax treatments and a relatively larger shadow economy and level of tax fraud. Related to tax fraud, indeed, it is possible that the rise in electronic payments during and after the pandemic (perpetuated by the decrease in cash payments during this period) has made tax evasion more difficult, helping to increase VAT collections and changing individuals’ behaviour. As well, the pandemic may have helped bring about a decrease in the number of workers without a contract and not paying income taxes and social contributions. Thus, given that the regime for special tax treatment has not changed substantially, it has been deduced that resolution of the latter issues is responsible for reducing the gap. That said, once again, on this point, the empirical evidence is far from conclusive. Moreover, the surprising and starkly contrasting pictures painted by the various calculations made using VAT, and the divergence in estimates about the size of the shadow economy, which place Spain both above and below the EU-27 average, clearly illustrate the need for more rigorous analysis over a larger time series after the pandemic. Such an effort would additionally serve to provide the foundations for building a more ambitious strategy for situating Spain within the first quartile of the EU-27’s best-performing member states in terms of efforts to combat the shadow economy and tax fraud.