By Yoon Ja-young
The ratio of the underground economy to gross domestic product (GDP) has fallen below 20 percent for the first time, dropping around 10 percentage points since the early 1990s. It is, however, still far higher than in other developed economies.
According to an International Monetary Fund (IMF) Working Paper titled "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?" the ratio of Korea's shadow economy compared with its GDP was estimated at 19.83 percent as of 2015.
Co-authors Leandro Medina and Friedrich Schneider compared the shadow economies of 158 countries around the world from 1991 to 2015. They defined a shadow economy as "all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons."
Monetary reasons include avoiding paying taxes and all social security contributions, while regulatory reasons include avoiding governmental bureaucracy or the burden of regulatory frameworks, and institutional reasons include corruption law, quality of political institutions and weak rule of law. However, the authors excluded illegal or criminal activities, do-it-yourself or other household activities in their study.
"Overall, we again find one stable result, a declining size and development of the shadow economy from 1991 to 2015. The continuous decline is only interrupted in 2008 due to the world economic crisis," the report noted. The average ratio of shadow economies to GDP of the 158 countries was 27.78 percent in 2015, which compares with 34.51 percent in 1991.
The ratio in Korea was 29.13 percent in 1991. It continued dropping to 25.97 percent in 1997, but jumped to 30 percent the next year following the Asian financial crisis. It started falling again, recording 23.86 percent in 2008 during the global financial crisis. It fell below 20 percent for the first time in 2015.
Korea's shadow economy is still huge compared with other developed economies. Switzerland had the lowest ratio at 6.94 percent in 2015. Australia, Canada, Germany, Ireland, Netherlands, the U.K. and the U.S. also had ratios below 10 percent.
Among Asian countries, the ratio was notably low in Japan at 8.19 percent and in Singapore at 9.2 percent. China also had a ratio lower than Korea at 12.11 percent, and Vietnam marked 14.78 percent.
Zimbabwe, meanwhile, had the highest ratio at 67 percent. Georgia, Nigeria, Gabon and Myanmar also had shadow economies take over 50 percent of their GDP.
The size of a shadow economy varies greatly depending on calculation methods. The Korea Institute of Public Finance estimated Korea's underground economy to be valued at 124.7 trillion won in 2015, which was 8 percent of the GDP that year. The estimation is based on the gap between the taxes that should have been paid and the taxes that were actually paid. It showed the ratio has been falling for the past few years.
The government has been making efforts to open the underground economy, looking into financial transactions as well as encouraging the use of credit cards while obligating the issuance of receipts for cash payments.
The ratio of the underground economy to gross domestic product (GDP) has fallen below 20 percent for the first time, dropping around 10 percentage points since the early 1990s. It is, however, still far higher than in other developed economies.
According to an International Monetary Fund (IMF) Working Paper titled "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?" the ratio of Korea's shadow economy compared with its GDP was estimated at 19.83 percent as of 2015.
Co-authors Leandro Medina and Friedrich Schneider compared the shadow economies of 158 countries around the world from 1991 to 2015. They defined a shadow economy as "all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons."
Monetary reasons include avoiding paying taxes and all social security contributions, while regulatory reasons include avoiding governmental bureaucracy or the burden of regulatory frameworks, and institutional reasons include corruption law, quality of political institutions and weak rule of law. However, the authors excluded illegal or criminal activities, do-it-yourself or other household activities in their study.
"Overall, we again find one stable result, a declining size and development of the shadow economy from 1991 to 2015. The continuous decline is only interrupted in 2008 due to the world economic crisis," the report noted. The average ratio of shadow economies to GDP of the 158 countries was 27.78 percent in 2015, which compares with 34.51 percent in 1991.
The ratio in Korea was 29.13 percent in 1991. It continued dropping to 25.97 percent in 1997, but jumped to 30 percent the next year following the Asian financial crisis. It started falling again, recording 23.86 percent in 2008 during the global financial crisis. It fell below 20 percent for the first time in 2015.
Korea's shadow economy is still huge compared with other developed economies. Switzerland had the lowest ratio at 6.94 percent in 2015. Australia, Canada, Germany, Ireland, Netherlands, the U.K. and the U.S. also had ratios below 10 percent.
Among Asian countries, the ratio was notably low in Japan at 8.19 percent and in Singapore at 9.2 percent. China also had a ratio lower than Korea at 12.11 percent, and Vietnam marked 14.78 percent.
Zimbabwe, meanwhile, had the highest ratio at 67 percent. Georgia, Nigeria, Gabon and Myanmar also had shadow economies take over 50 percent of their GDP.
The size of a shadow economy varies greatly depending on calculation methods. The Korea Institute of Public Finance estimated Korea's underground economy to be valued at 124.7 trillion won in 2015, which was 8 percent of the GDP that year. The estimation is based on the gap between the taxes that should have been paid and the taxes that were actually paid. It showed the ratio has been falling for the past few years.
The government has been making efforts to open the underground economy, looking into financial transactions as well as encouraging the use of credit cards while obligating the issuance of receipts for cash payments.
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