Rising unemployment and high tax and social insurance contributions are causing an increasing number of people in Austria to abandon formal employment and work in “shadow economies”, according to a study published by economist Friedrich Schneider of the University of Linz.

Austria's shadow economy booming

The shadow economy in Austria is expected to account for €21.3 billion, or 8.1 percent of Austria’s gross domestic product (GDP) this year. As a result the state is expected to lose out on between €2 and €3.5 billion in tax and social insurance contributions.

Despite a projected increase of 4.5 percent this year Austria’s shadow economy is still smaller than in most other European countries, such as Germany (12.2 percent) and the UK (9.4 percent). Of the OECD countries, only Switzerland, the US, and New Zealand have a lower rate of unreported employment.

In countries hit by economic crises, like Greece, Italy, Portugal and Spain, the shadow economy accounts for 18-22% of GDP.

The shadow economy covers everything from unreported income from work like cleaning and childcare to illegal employment and criminal activities.

In Austria, Vienna has the biggest illicit economy, worth around €5.9 billion. The construction and handyman trades have the most people working on the black market.

In the past Schneider has argued that rather than trying to deter the shadow economy governments should embrace the entrepreneurship it spawns and lower taxes.

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