Spain, the paradise of the underground economy

Spain, the paradise of the underground economy

The Spanish underground economy is estimated to be between 230,000 and 240,000 million. It was 16.9% of GDP in 2021, compared to the EU weighted average of 14%. In March this year, the anti-crisis shield dropped to 15.8%, 1.5% below the EU average. This is the biggest difference recorded in 20 years.

However, the weight of the underground economy in our country is still high. Some economists say that without this hidden sector (almost a national institution), the crisis in our country would rise and reach unsustainable levels. In his inauguration speech, Pedro Sánchez announced a battery of economic measures, including tax reforms, establishing a minimum corporate tax rate of 15% and combating the underground economy. What happened to that ad? Actions were taken here and there. But the absence of a comprehensive program against the underground economy, which would allow pockets of poverty to emerge, fight fraud and allow the state to collect more in taxes to support the welfare state. Logically, the plan would require a significant increase in the workforce of Treasury inspectors, an effort that does not appear to be one of the current government’s priorities.

According to data from the Government Employees Union Kesta Tax Agency, 28% of Spaniards are willing to earn a ‘B’ and work. For this company, hidden labor activity represents 17.7 percent and 18.1 percent of Spain’s GDP. We will talk about 235,000 and 240,000 million euros circulating in the shadows. Furthermore, they warn that Spain is the country with the highest flow of money outside official channels in Southern Europe. Also, Spain is the country in Southern Europe where the flow of money outside official channels has increased the most.

Spain is the country in Europe with the largest increase in the flow of money outside official channels

So we are faced with an epidemic that is causing serious disruption to the national economy. Measures to improve the underground economy made it possible to regularize fees for 435 million euros, and 8.8 percent, and 122 million were settled for taxpayers subject to entry and registration measures. In addition, the tax agency conducted more than 29,000 in-person visits to tax risk sectors and areas. Of this, nearly 9,800 corresponded to the VAT scheme and nearly 1,800 supported sectoral macro-operations. There are many reasons why a worker might join the underground economy. In any of their fields: because they have a salary to finish (38% of those surveyed), because companies do not offer them another option (37%) or because they do not want to pay taxes because they consider them unequal. A small percentage (8%) do not want to lose unemployment benefits.

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The Treasury also highlighted the induced effect of notices sent to taxpayers to remind them of the need to declare rent (one of the best sources of the underground economy in our country), which according to their calculations allowed a tax base of 7.7 billion. 933 million raised in the last six years. The actions of the collection area allowed to reduce the outstanding debt to 40,421 million, 3.8% less, of which 15,864 million was voluntary debt and the rest (24,558 million) was administrative debt.

The underground economy is any economic activity that escapes the control of the treasury and tax agency. Logically, this activity does not count directly in a country’s GDP. In January 2012, finance ministry technicians calculated that reducing the fraud rate by 10 percentage points would save the state an additional 38,000 million euros a year, more than double what the Mariano Rajoy government plans to save with the cuts. The tax hike was approved at the end of December 2011.

A step Funkas report, Analytical Center or Think tankDedicated to economic and social research and its dissemination, quantifying the size of the underground economy is neither an easy task nor free from systematic controversy. When methods routinely used in the economic literature are used to measure the underground economy in Spain, its size is found to be significant, accounting for 21.5 percent of GDP in the period 2005-2008. With a collection cost of 7 percent of GDP And about 4.3 million jobs are submerged. “If we take into account that in Spain there is a certain tolerance for drowning activities, these results are not surprising. However, we should not fall into the temptation of considering the underground economy as an intrinsic part of our economic life. The underground economy is considered by some as an escape valve in recessionary situations like the current economy, but because of the multiple distortions it creates (equilibrium, efficiency, distortion of competition, etc.), this is a difficult long-term stabilization for the Spanish economy.”

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