Taub Center in new research: Eligibility for pensions and grants in times of crisis will expand the volume of unreported capital • In the years 2008-2018, the rate of disappearances decreased from 14% to 10% of GDP
NII
Photo:
Dudu Greenspan
The black economy is in constant decline, but the indirect taxes and various allowances increase the scope of the unreported capital phenomenon, according to a new study by the Taub Center on the "hidden economy in Israel."
The Taub Center estimates that following the corona crisis, which led to an expansion of entitlement to unemployment benefits and self-employment benefits, "the share of tax evasion in the hidden economy in Israel will increase."
A hidden economy includes all economic activity and the income derived from it, evading tax authorities and government oversight.
According to OECD definitions, the hidden economy has four main components: underground production (legal but hidden production from the tax authorities);
Illegal production;
Production in the informal sector (of unregistered organizations producing beyond self-supply);
And economic activity that is not recorded and is not included in the calculation of the product due to deficiencies in the government data collection system.
The extensive economic activity that is not reported to the tax authorities detracts from government revenues, and causes distortions in important economic indicators such as the measurement of GDP.
The research conducted by the Taub Center includes, for the first time, both the effect of the type of tax (direct tax, indirect tax and transfer payments) and the effect of illegal activity on the size of the hidden economy in Israel.
According to the study, the size of the hidden economy fell by almost a third in the last jubilee - from 14% of GDP in 1996 to 10% in 2018.
This figure puts Israel in a better position than a significant number of developed countries in the world: it is estimated that the hidden economy accounts for about 12% of all economic activity in Anglo-Saxon countries, between 20% and 30% in southern Europe and about 40% in developing countries.
The loss: 134 billion shekels
As a result of the hidden economy, the State of Israel loses capital worth NIS 134 billion a year.
The maximum rate of hidden economy in Israel was observed during the global economic crisis of 2008-2007, when it jumped to 18% of GDP. As mentioned, it can be expected that in the current economic crisis, the extent of which is still unclear, there is an increase in hidden economy.
According to the study, in the last decade the share of tax evasion in the hidden economy is on a downward trend, and in 2018 it was only 1% of GDP. This result is due to the fact that in 2016 a downward trend began in total cash drawn from public accounts. Who paid for them not in cash.
This trend, along with the decline in the tax burden that characterized the last decade in Israel, was reflected in a sharp decline in the share of tax evasion in the hidden economy in those years.
