Warning: Undeclared work may increase in Germany

2024-01-30 19:47:27, Kosova & Bota CNA

The volume of the undeclared economy in Germany is expected to increase in 2024. This results according to a forecast of the Tübingen Institute for Applied Economic Research (IAW). According to this forecast, the value of benefits generated illegally from undeclared work will increase by 38 billion lek to reach 481 billion euros in total.

This represents an increase of 8.4 percent. Thus, the expected share of the informal economy in the gross domestic product would be 11.3 percent. After a period of decline, this is the first increase since 2021. According to economists, the share of informality in the economy should return to the level of 2014 this year.

Warning: Undeclared work may increase in Germany

The forecast estimates that Gross Domestic Product shrank by 0.6 percent last year and that the number of unemployed averaged 2.6 million. The researchers also assumed an inflation rate of 2.7%. According to provisional data from the Federal Statistical Office, however, the German economy shrank by 0.3 percent last year compared to a year earlier, accounting for inflation; according to current data, inflation averaged 5.9 percent in 2023.

The impact of the increase in "compensation for the citizen" and gastronomy

Experts expect that raising the "citizen allowance" (Bürgergeld), i.e. the higher percentage of the benefit for citizens, will generally reduce undeclared work. It is true that improved benefits will also make some Citizen's Allowance recipients less likely to work. However, this effect will be offset by the fact that fewer beneficiaries will feel the need to earn money illegally as a result of increased "citizen compensation" payments. As a result, the amount earned from illegal work is expected to decrease by 2.4 billion euros as a result of the imposition of citizens' payment.

Warning: Undeclared work may increase in Germany

However, returning to the full VAT rate in the restaurant sector would have the opposite effect. Scientists expect an increase in undeclared work of 1.9 billion euros.

IAW researchers have estimated the rate of undeclared work since the late 1990s. Forecasts are based on a complex procedure that combines several variables that are indirect indicators of the informal economy. These include tax morale, the unemployment rate, the inflation rate and the demand for money./ DW