Transcript Naziv prezentacije - Center for the Study of Democracy

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INFORMAL ECONOMY IN
SERBIA
Prepared by: Mirko Cvetkovic
Belgrade, September, 2005
www.cesmecon.com
DEFINITION AND SCOPE OF PRESENTATION
What is informal economy
Illegal economic activities
Legal, but unregistered, economic activities
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INFORMAL ECONOMY IN SERBIA
(ROUGH ESTIMATIONS)
In mid-nineties
Over 50% share in GDP
The biggest and the most profitable markets included cigarettes (more than
90%), petroleum products (more than 50%), retail trade, household repairs
and maintenance services, civil engineering materials and works
 Participation: practically the entire population
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Immediately after the year 2000
Share in GDP about 35%,
The most attractive sectors included retail trade, household repairs and
maintenance services, building construction works
 Participation: about 1.2 mill. people
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INFORMAL ECONOMY IN SERBIA - Continued
The most recent estimation for 2003-2004 based on field research (sample of 51
municipalities with population of 2.8 mill.)
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Share in GDP probably between 25 and 30%
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Distribution sectorwise:
a)
b)
c)
d)
e)
f)
retail trade 35.98%
tourism and catering 32.90%
household repairs and maintenance services 31.76%
civil works 26.80%
agriculture 21.61%
production of goods 20.18%
Note: Estimations are rather rough due to the nature of the activity. Some believe
that the figures are substantially underestimated.
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MAIN GENERATORS OF INFORMAL ECONOMY
General
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Crisis of the system and economic crisis
Supremacy of politics over economy
Restrictive economic policy towards private sector, and poor control of social
and public sectors
Low earnings and the decrease of living standard
High unemployment
Unregulated taxation system, inadequate tax policy and insufficient control
Inefficiency of state institutions, and specifically of the legal system
Mild penalties, i.e. low risk relative to the expected gain
Serbia specific generators
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War and war-related migrations (refugees)
International economic blockade and UN sanctions
Enormous number of the employed on paid leave
Distrust in the state and its institutions and low level of morality with regard to
tax duties
Social ownership and belief that everything belongs to everybody
Slow transition compared to the expectations of the population
Some of the above generators are no longer present, but they significantly
contributed to the informal economy level faced at present
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SERBIAN INFORMAL ECONOMY CONTROVERSY
Supporting Arguments
It is considered that the informal economy was the only way to survive under
Sanctions
No one is blaming the refugees’ involvement in informal economy since no
alternative is offered (once you look favorably at one category, the next step is
that others enter informal economy and rationally expect equal treatment)
Both sellers and buyers believe that informal economy is adding the value to their
standard of living: for sellers it is tax-free income, and for buyers it is a cheap
product or service
(note: during the sanctions some products were only available through informal
economy channels)
The massive participation and long lasting immense influence of informal
economy on the global country economy created a positive image of informal
economy; the majority of population does not consider informal economy to be a
criminal activity
Some economist believe that certain informal economy activities remain
profitable only if informal
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SERBIAN INFORMAL ECONOMY CONTROVERSY
Opposing Arguments
It is clear that in the long run informal economy produces devastating
effects not only on the economic activity but on the morality of the entire
society
Negative effect on public revenues and uneven distribution of tax burden
Unfair competition against formal economy
Discouraging effect on setting up small and micro enterprises that cannot
compete with informal economy; this is the main reason for low pace in
founding of micro companies or entrepreneurship, and, as a
consequence, for a very high unemployment rate
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MEASURES AGAINST INFORMAL ECONOMY
Traditional positive measures – removing the causes that generate informal
economy
 Development of economy and increase in standard of living
 Accelerating transition and giving strong support to free market economy
 Elimination of social ownership
 Introducing transparency and anticorruption as the main anchor of the
system
 Producing and implementing the legal framework in line with the free
market economy environment at all levels (a recent favorable example is
the introduction of the value added tax system as opposed to the previous
sales tax system)
 Providing the way of legalization of actual informal economy activities
Traditionally negative measures
 Introducing the penalties that will increase the risk and make trade off in
favor of formal economy
 Improve the efficiency of legal system including efficiency of procedures
and courts
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ADDITIONAL - NON-TRADITIONAL MEASURES
The traditional measures are necessary, but the results will be gradual and in line
with general improvement of economy and living standard.
Non-traditional measures aim at increasing public awareness that informal
economy is, in its essence, a criminal act. These measures are focused on
mobilizing population and turning around the perception of informal economy.
The following actions are proposed:
 To reach a political consensus among the ruling parties and the opposition,
 To hire a PR company that would prepare a wide PR campaign. The
participants should be political players (both ruling and opposition) at
various levels. High politicians might make one or two appearances on TV,
and medium level might be engaged in a road show. In addition,
inexpensive leaflets might be produced on a large scale and distributed to
the population.
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