Reducing the Hidden Economy in Bulgaria – Policies, Impact and Lessons Ruslan Stefanov Project Coordinator Federal City Council Washington D.C., April 19 th, 2004

The Bulgarian Path Hidden economy declined steadily since 1997 Public-private partnership and international (incl. U.S.) support a key factor for success Challenges - need for further attention

The Colors of Hidden Economy official hidden criminal

Source: Friedrich Schneider Hidden Economy - Bulgaria’s Position in 98/99

Hidden Economy - Barriers to Business (% of companies defining the respective item as a ‘big’ problem to their business) Source: Vitosha Research

Public-Private Action The Private Sector – 2001/2002 – series of high-profile public and policy events  critical test for success: mechanisms for keeping government on the right track Ministry of Labor and Social Policy – registration of labor contacts & social security contributions thresholds  persons have emerged from undeclared work + more than $ 150 mln. increase in social security revenues  critical test for success: reduction of social security payments, tax administration improvement Ministry of Finance – customs reform & revenue agency  customs revenue increased by 18% and fraud detection by 70%  critical test for success: closure of major sources of informality

The Index Informal Economy Index Business Perceptions Hidden Labor Hidden Turnover Tax Evasion the index has two levels indices assume values from 0 (low informal economy) to 10 (high informal economy) measures dynamics + pinpoints problems areas + attracts public and policy attention

Index Dynamics Source: Coalition 2000

Index Components’ Dynamics Source: Coalition 2000

The Hidden Economy – Policy Response & Lessons >50% ~35% ~25% 1996/ / /2003 Economic policyAdmin. policy?

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