@article{Kyle:127656,
      recid = {127656},
      author = {Kyle, Steven C. and Warner, Andrew and Dimitrov, Lubomir  and Krustev, Radoslav and Alexandrova, Svetlana and  Stanchev, Krassen},
      title = {Measuring the Shadow Economy in Bulgaria},
      address = {2001-07},
      number = {642-2016-44021},
      series = {WP},
      pages = {28},
      year = {2001},
      abstract = {GDP accounts are customarily compiled in several  alternative ways, each aggregating
transactions in  different ways, but all (at least in theory) adding to the  same total. Two of the
most common aggregations are that  focused on expenditures (based on the standard  national
income accounting identity of C + I + G + X - M)  and that based on revenues, or incomes. The
two methods  should, of course, add to the same number since they  measure different sides of the
same activity: what money  people receive on the one side, and what they do with it on  the other.
However, Bulgarian GDP statistics using the  revenue approach give growth rates 2
percentage points  lower than the expenditure approach for 1998 and 1999. In  other words, data
based on what people actually spend show  growth rates of 5.4% (1998) and 4.4% (1999), while
official  figures based on revenues are 3.5% and 2.4%, respectively.  This can be interpreted as
evidence that there are  underreported incomes. It is of interest not only for  statistical but also for
economic policy purposes to have  more detailed information about the discrepancies  between
official statistics and activities not covered by  the official statistical system. It is  particularly
interesting to know the size and structure of  unreported, hidden economic activities, or what has
come to  be called the “shadow economy.” Currently published  estimates of the size of the
shadow economy vary from 20 to  25% of officially measured GDP, implying that this is a  far
larger issue than that implied by the differential  growth rates cited above.
The objective of this study is to  estimate the size of the informal sector, its structure,  and
the dynamics of its development since Bulgaria ended  its long standing centrally directed
command economy.  Different methods were used to get results that are  compatible for
international comparisons; also, alternative  calculations allow a range of estimates which can
help to  balance the methodological weaknesses of the individual  approaches.
The basic rationale of Physical Input  Approaches to measuring the size of the shadow
economy is  that energy consumption (electricity, plus other sources)  in a given country is
proportional to total economic  activity and any change in energy consumption which does  not
correspond to changes in the measured total activity  level of the country indicates a change in the
size of the  shadow economy. These results provide useful indicators of  changes in the shadow
economy over time, but cannot be used  to quantify its absolute size since this depends on  an
initial estimate of its size in the base year. This  estimate is necessarily arbitrary to some degree
in the  absence of specific micro-level data allowing definition of  an explicit relationship between
energy use and economic  activity. Results show that the Bulgarian shadow economy in  1998
declined below the estimated base year (1989) share of  30%. According to our calculations the
share of the shadow  economy in 1998 GDP in Bulgaria was 22%. The largest shares  were
observed in 1990 (32.2%) and 1996 (34.4%), declining  thereafter.
This study has shown that though the size of  the shadow economy has declined from its
peaks in the mid  1990’s, it remains a sizable portion of the Bulgarian  economy. While in many
ways shadow activities have the  potential to be dynamic growth sectors, bringing them  into
official economy would help spread the burden of  social programs more broadly. Our results
show that a  substantial portion of the response to policy initiatives  is effectively hidden from
official view. Thus, an ability  to correctly estimate the size and structure of the shadow  economy
will not only provide more accurate statistics but  can help improve growth policies as well.},
      url = {http://ageconsearch.umn.edu/record/127656},
      doi = {https://doi.org/10.22004/ag.econ.127656},
}