Lithuania‘s black economy ‘is bigger than entire state budget’

The black economy in Lithuania is estimated to be worth more than €9 billion, or more than one billion euros more than the country‘s budget this year, which includes EU funding and other international supports.

Some estimates put the size of Lithuania‘s black economy equivalent to about a quarter of Lithuania’s GDP, and Lithuania was among the top five countries with the biggest shadow economy percentage to gross domestic product.

Shadow economy research carried out by Lithuania’s Free Market Institute shows that over 57% of Lithuanians evaluate the likelihood of being caught working without a contract or receiving a part of salary off the books as ‘low’ or ‘very low’. In contrast, in Sweden, some 63% of Swedes evaluate the probability as a ‘high’ or ‘very high’.

“That €9 billion is important money and that is the money that is being lost because of poor economic policies,” said the president of the Free Market Institute, Žilvinas Šilėnas.

However, opinions vary on the exact size of the shadow economy in Lithuania: “The likely share is 15-16%, which is in line with data by Statistics Lithuania. Hence, to put it crudely, it is quite inappropriate to put the figure at 25% or 30%,” says Dr. Ligita Gasparėnienė of Mykolas Romeris University.

When it comes to the purchase of illegal goods or services, about 78% of Lithuanians believe that the chance of being caught being illegal goods or buying goods without paying the appropriate taxes is very low whereas again in Swedent about 70% of Swedes are convinced that the probability of being caught while buying such items is high or very high.

“Estimates show that we could collect an additional one third of VAT but do not. There are also the envelopes or even sometimes large envelopes, which hide the payment to the employees, thus avoiding taxes. The third part of the black economy is avoiding excise duty on goods like fuel, cigarettes and alcohol,” said Nordea chief economist in Lithuania Žygimantas Mauricas.

Cigarettes, alcohol and fuel make up a big part of Lithuania’s black economy. For example, smuggled cigarettes account for about one fifth of the total cigarette market here, while illegal alcohol commands about 22% of the market. Illegal fuel sales account for 7% of gasoline and 11% of diesel sales.


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