Undeclared Economy in Croatia during the 2004–2017 Period: Quarterly Estimates Using the MIMIC Method

Abstract

Even though Croatia is among the most active EU countries when it comes to tackling undeclared economic activities, not much is known about the effectiveness of numerous policy measures introduced since joining the EU. As there is no systematic approach toward quantification of the undeclared economy in the newest member state, this paper fills the gap by presenting a tailored and robust procedure based on the Multiple Indicators and Multiple Causes (MIMIC) method. The methodology developed is then applied to assess the magnitude of the phenomenon in Croatia for the 2004–2017 period. The analysis reveals that the undeclared economy in Croatia has remained rather stable during the last decade and a half, with its value added ranging between HRK 24.1 and 26.9 billion. Accounting for 7.8 percent of the total GDP in 2017, undeclared undertakings represent a significant obstacle, which should therefore be systematically addressed. What is more, the findings indicate a rising trend, thus challenging the efficiency of the current policy approach by the Croatian government.