“High levels of government spending and front-loaded tax rises have pushed both individuals and businesses into illicit employment. This is a dangerous cycle,” Freidrich Schneider and Colin Williams stated.
Punitive tax regimes, increased labor market regulation and a growing lack of trust in governments are causing many Europeans to abandon formal employment and enter into the murky, illicit world of shadow economies worth billions of dollars, according to a pan-European study published on Tuesday.
Research commissioned by the U.K.-based think tank, the Institute of Economic Affairs (IEA), revealed on Tuesday that Europe’s shadow economy employs up to 30 million people across the European Union and that illicit economic activity constitutes up to 20 percent of national income in countries such as Spain, Italy and Greece.
In the U.K., the shadow economy constitutes approximately 10 percent of gross domestic product (GDP), about 14 percent in Nordic countries and between 20 to 30 percent in many southern European countries, according to the IEA.
The study carried out by the Freidrich Schneider, professor of economics at Johannes Kepler University in Austria and Colin Williams, professor of public policy at Sheffield University, found the shadow economy in Europe had grown in recent years because of “ballooning tax rates,” leading to a lack of trust in the state.
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