Portugal’s Rising Unobserved Economy Share in a Single-country Study
Portugal’s Rising Unobserved Economy Share in a Single-country Study

Summary/Abstract: This study estimates that the Unobserved Economy (UnEc) share in Portuguese GDP rose to a maximum of 34.37% in 2022. The results suggest that cutting the tax burden and improving the efficacy of social benefits could reduce UnEc and foster inclusive growth. The rising UnEc share MIMIC estimates found in this single-country study, with variables suited to Portugal, contrast with the downward trend (from 22.2% in 2003 to 16.5% in 2021) in the MIMIC multi-country study by Schneider (2021), which uses different variables and does not report how country heterogeneity is dealt with. Compared to other recent single-country estimates for the European Union periphery, Schneider (2021) also underreports the UnEc share of (at least) Greece, Poland, and Lithuania. Therefore, the authors recommend that authorities prioritize single-country UnEc estimates in their analysis and policy design and be aware of the limitations of multi-country results.

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