Shadow economy - is an enterprise survey a preferable approach?

The direct approaches to measuring the shadow economy have not been used extensively until very recently. A relatively simple method has been developed (Talis J. Putninš and Arnis Sauka 2015) using an income approach to measuring GDP and exploiting survey data on unreported employee wages and the business income generated by enterprises, which was provided by owners/managers of such enterprises. This paper illustrates the advantages of this approach over indirect ones through applying it to two EU candidate countries. This is first done by measuring the size of the shadow economy and then by providing estimates of the factors which cause enterprises to engage in shadow economic activity. Estimates of these factors suggest a number of policy approaches that could reduce the size of the shadow economy in countries similar to the ones we have used here.