Estimates of the shadow economy
Shadow economy as a research topic
Typically, the shadow economy has been studied by measuring its overall size and growth trends or its sub-sectors such as undeclared work. In international studies, the size of the shadow economy has often been measured as percentage of GDP. There is no uniform or generally accepted definition for the shadow economy, and for this reason, the content of the concept varies from study to study. The choice of the subject of research and the term used for it may also have been influenced by whether the subject is approached from the perspective of macroeconomics, taxation or labour use. There are numerous terms in English to describe the phenomenon. In addition to shadow economy, informal economy and underground economy are often used in the EU.
In addition to the studies on the shadow economy, reports on the tax gap also provide information on the shadow economy. The tax gap means the difference between expected tax revenue according to the law and actual tax revenue. The shadow economy is one factor increasing the tax gap but there are also other reasons such as insolvency, incompetence and negligence among taxpayers or interpretative problems. It can be assumed that the tax gap correlates with the size of the shadow economy in some ways. In addition to lost tax revenue, the shadow economy also causes a fall in pension and social insurance contribution revenue and a decrease in the fees collected by the customs. However, not all losses generated by the shadow economy are final as some of the losses detected by the authorities can be recovered.
The shadow economy is part of the hidden economy and it is therefore difficult to estimate its size or share of the total economy. There are significantly fewer estimates of the size of the shadow economy than of such phenomena as the tax gap. The research methods and the findings they produce may vary greatly.
Methods used to study the shadow economy
In economic research, the shadow economy is often measured as output not included in the GDP calculations. In the fiscal sense, the size of the shadow economy is measured, for example, by the amount of taxable income outside taxation, from which the amount of taxes or other fees and charges left unpaid can be derived. In many cases, the losses in taxes and other fees and charges resulting from the shadow economy can only be roughly estimated as the activities of the shadow economy and their consequences may vary significantly.
There are numerous methods to measure the shadow economy, and they can be divided into direct and indirect approaches. In direct methods, the results of surveys, interviews and tax audits are used to concretely measure the extent of the shadow economy. Indirect methods assess the size of the shadow economy based on one or more visible indicators such as demand for cash or electricity consumption. MIMIC (Multiple Indicators Multiple Causes) is kind of variation. In it, the size of the shadow economy is calculated using several assumed causes of the shadow economy as well as indicators assumed to reflect its extent. Due to different methods, batches and definitions, the share of the shadow economy of the Finnish GDP varies depending on the study.
Estimates of the size of the shadow economy
The estimates of the size of the shadow economy in Finland vary between 2.5% and 20% of GDP. In many of the studies, the GDP share of the shadow economy in Finland is estimated to be below the European average. The following studies are presented in the order of their year of publication.
A report published by the EY in 2025 assessed the size of the shadow economy and its trends in 131 countries in the period 2000–2023. According to the study, the shadow economy was estimated to account for 6.6% of the Finnish GDP in 2023. In 2023, the shadow economy was estimated to account for 11.8% of global GDP. Currency demand approach (CDA) was the method used in the study. Shadow economy: refined estimates and policy areas | EY - It [.fi]›
In a study published by Achim et al. in 2024, the shadow economy in Finland was estimated to account for between 11% and 13% of GDP in the period 2001–2021. A modified version of the physical input approach based on energy consumption was used in the study. New estimate of shadow economy based on the total energy consumption. Evidence from the European Union countries - ScienceDirect [.fi]›
In a study published by Asllani et al. in 2024, the shadow economy in Finland was estimated to account for between 2.4% and 2.5% of GDP in the period 1997–2022. The method used in the study was described as an enhanced MIMIC approach, which takes into account such country-specific characteristics as culture and tax morale. Mapping the Informal Economy Around the World with (PDF 8,16 MB)
In a study published by Postea et al. in 2023, the shadow economy in Finland was estimated to account for between 11.5% and 13.1% of GDP in the period 2001–2021. The physical input approach based on energy consumption was used in the study. Tax evasion in the context of the shadow economy. Evidence for the European countries (PDF 864 kB)
According to a study published by the European Commission in 2023, undeclared work in Finland accounted for an estimated 7.8% of private sector labour input in 2019 (the estimate for 2013 was 9.3%). In 2019, undeclared private sector labour input in Finland was put at 9.9% of gross value added (GVA) (the estimate for 2013 was 11.8%). In the study, the Labour Input Method (LIM) was used to estimate the size of the shadow economy. According to the study, Finland is one of the countries where most (68.1%) of undeclared work is performed by self-employed individuals. Extent of undeclared work in the European Union. February 2023 [.fi]›
• Read more: Analysts of the Grey Economy Information Unit of the Finnish Tax Administration do not consider the findings reliable
In a study published by the European Parliament in 2022, the shadow economy in Finland was estimated to account for 10.8% of GDP in 2022. According to the study, conducted using the MIMIC method, the share of the shadow economy in Finland has decreased steadily since 2003 when it was estimated to account for 17.6% of GDP. Taxation of the Informal Economy in the EU (PDF 2,05 MB)
According to a study published by Schneider in 2022, the shadow economy accounted for an estimated 11.4% of Finnish GDP in 2020 when measured using the MIMIC method. New COVID-related results for estimating the shadow economy in the global economy in 2021 and 2022 (PDF 1,01 MB)
In its report published in 2022, the Grey Economy Information Unit of the Finnish Tax Administration put the amount of undeclared work in Finland at about EUR 900–1,400 million each year between 2014 and 2020. This resulted in annual losses of between EUR 300 and EUR 480 million in tax and social insurance contributions each year. Undeclared wages accounted for less than one per cent of all wages paid to wage earners. For shareholders of limited liability companies, the figure was almost 10%. For self-employed individuals, undeclared work accounted for about 10% per cent of their business income. A deficit of hundreds of millions in central government funds from undeclared work
According to a study of 158 countries funded by the International Monetary Fund and published in 2021, the shadow economy in Finland averaged 13.5% of GDP in the period 1991–2015 when calculated using the MIMIC model. The evolution of shadow economies through the 21st century. The global informal workforce: priorities for inclusive growth (PDF 14,8)
According to a study funded by the World Bank and published in 2019, the shadow economy in Finland was estimated at 20% of GDP in 2016. According to the study, the GDP share of the shadow economy in Finland remained at about 18%–21% between 2000 and 2016. In the study, MIMIC model was used to estimate the size of the shadow economy. Explaining the Shadow Economy in Europe: Size, Causes and Policy Options (PDF 1,02 MD)
According to a study published by Finnish Parliament in 2010, annual size of the shadow economy totalled between EUR 10 and EUR 14 billion in 2008. This was between 5.5% and 7.5% of Finnish GDP in 2008. The total size of the shadow economy was estimated on the basis of sub-results produced using a variety of different methods. Shadow economy in Finland is becoming more international (in Finnish) (11,3 MD)
Estimates of the size of the tax gap
The purpose of the tax gap estimate is to create a picture of the number of tax errors made and of the tax revenue lost by central government. Most of the tax gap estimates give the size of the VAT gap. The estimates of the VAT gap in Finland presented in domestic reports vary between 3% and 8% of the tax revenue.
The Finnish Tax Administration put the VAT gap for 2023 at about EUR 600 million, or about 3% of the sum of VAT returns. Tax debts accounted for about one per cent of this total. This estimate has been produced since 2019, and it has remained more or less unchanged, at about three per cent throughout the measurement period. The tax gap estimate is presented each year in the annual report of the Finnish Tax Administration [.fi]› and to Parliament in the Government’s annual report (in Finnish) [.fi]›.
The European Commission calculates the VAT gap using national accounts data and has put the Finnish VAT gap for 2023 at about 3%. Due to changes in the model and information content, there has been a great deal of variation in the Commission’s VAT gap estimates in recent years. Although the estimate is indicative, it invariably shows that Finland’s VAT gap is among the smallest and most consistent in Europe. VAT gap in Europe Report 2025 [.fi]›
The Finnish Tax Administration has assessed the VAT gap for the period 2008–2019 using a method developed by the International Monetary Fund (IMF), in which the calculations are based on the national accounts statistics and taxation data produced by Statistics Finland. The tax gap estimate was at its highest in 2009–2010 (at 8%) and at its lowest in 2019 (at 3%). Government’s annual report 2021 (in Finnish) [.fi]›