According to an annual survey by German economic institute IAW, the black market in Sweden is estimated to represent 13.9 percent of the country’s GDP.
The figure compares favourably to Greece and Italy, where undeclared economic activity totals 24.6 percent and 21.1 percent of GDP respectively, yet Sweden’s shadow economy is larger than the OECD average of 12.6 percent of GDP.
Finland and Denmark, meanwhile, have under-the-table economies measuring 13.0 percent of GDP, according to the study, with Norway’s measuring 13.6 percent.
Tax authorities in France and the UK were found to be collecting a larger portion of taxable income than any of the Nordic countries, with the black markets there estimated at 9.9 percent and 9.7 percent of GDP respectively.
For the tweltth year in a row, however, the world’s most honest taxpayers are found in the United States, where unreported economic activity only accounts for 6.6 percent of GDP, the study found.
While Peter Isling, spokesman for the Confederation of Swedish Enterprise (Svenskt Näringsliv), hadn’t reviewed the details of the IAW study, he initially expressed surprise that Sweden didn’t rank higher than its OECD counterparts.
However, he cited the high taxes on Sweden’s relatively small service sector as one of the possible explanations.
“Sweden has relatively high taxes on services. And if it costs a lot to purchase certain services, consumers are often open to getting things done in an alternative way,” he told The Local.
“What we’ve seen, however, is that the reforms allowing tax breaks on household services and home improvement work have had an effect. The black market in these sectors has decreased.”
Indeed, the study found that Sweden’s shadow economy has shrunk by 4.2 percent in the last decade, one of the largest decreases among the 21 countries included in the study, which ignored earnings from criminal activity.
However, Sweden’s high taxes and relatively high entry-level wages likely help fuel the black market, according to Isling.
“There simply aren’t that many entry-level service jobs in Sweden, in part because wages at the bottom end of the scale are relatively high, and in part because they are taxed so much,” he said.
“If services are really expensive, consumers may turn to the black market.”
He suggested that extending tax breaks to other sectors might also help Sweden reduce the size of its shadow economy.
“Similar reforms in other sectors could lower prices for consumers so they would be less tempted to buy on the black market.”