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Public Discussion: Hidden Economy in Bulgaria 2012-2013
 
On 20 November 2013 the Center for the Study of Democracy (CSD) and the Friedrich Ebert Foundation presented CSD’s annual report on the Hidden Economy Index for the period 2012 – 2013. The event was attended by representatives of government agencies, non-governmental and international organizations, diplomatic missions and local media.

Ms. Regine Schubert, Director of the Friedrich Ebert Foundation in Bulgaria welcomed the longstanding cooperation between CSD and the Foundation in preparing the hidden economy report and pointed out that it not only provides a thorough economic analysis, but also recommendations for tackling hidden economic activities. Mr. Ruslan Stefanov, Director of the Economic Program at CSD, briefly presented the two indices, which the report is based upon (the Business Hidden Economy Index and the Population Unreported Economic Activity Index) and pointed out that the methodology has a successful and longstanding track record. Parts of it are employed on a European level and can be used for a comparative analysis between member states.

Mr. Martin Tsanov, Analyst, Center for the Study of Democracy presented the main findings of this year’s report. Bulgaria’s main macroeconomic indicators show slow economic growth, weak competitiveness, and gloomy labour market conditions. These trends facilitate the development of hidden economic activities, which is reflected by the increase in both indices of the hidden economy in 2013 - of the population and of the business. The data shows only a slight increase in the practice of hiring workers without a formal employment contract. But the rate of employment under a contract with hidden clauses (envelope wages) is the highest since 2002 – 13.8% of the employed reported having received remuneration higher than the one stated in their contract. In view of the main findings of the report, some of the main measures to tackle hidden economic activities in Bulgaria should include increasing the level of electronic payments, wider e-government penetration, and improving legislation aimed at restricting market cartelisation. A key recommendation of the report is to introduce clearer accountability and performance measurement regulations for the government regulatory agencies.

Mr. Todor Galev, Senior analyst in the Economic Program at CSD suggested that one of the main reasons for underreporting incomes is the low level of confidence in the social security system. According to him, speeding up the digitalisation of the EU funds absorption process and improving the coordination between regulatory agencies are important steps towards limiting the hidden economy in Bulgaria.

During the subsequent discussion, Professor Ivan Angelov from the Economic Institute of the Bulgarian Academy of Sciences pointed out that one of the worst effects of the hidden economy is the demoralization of the participants in legitimate economic activities. Mr. Nikolay Petkov, representative of the National Revenue Agency, noted that the VAT gap data for Bulgaria is lower that the EU average. He also pointed out that this data is subject to political speculations, which leads many agencies in the EU to eschew publishing it.

For more information on the topic, please visit:

Invitation

Presentation by Mr. Martin Tsanov, Analyst, Center for the Study of Democracy (in Bulgarian, Adobe PDF, 0.99 MB)

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