Electronic Payments: A Secret Remedy

The Shadow Economy in Europe, 2013 

Change is coming fast these days. Globalisation and digitalisation have dramatically altered the way in which we live, work, and communicate. Across Europe, consumers are adopting smartphones—in the United Kingdom and Spain, more than 6 in 10 mobile users own smart – phones—providing connectivity anytime, anywhere. An abundance of easily obtainable information has made today’s consumers more sophisticated and demanding of convenience across channels, devices, and applications. A shopper today can go to the local mall to try out several pairs of sneakers, then compare prices to other retailers—and even make a purchase—

using her mobile phone.

Paradoxically, as consumers achieve this “modernity,” they still rely primarily on old-fashioned cash for most of their transactions. Dirty and heavy, cash is also easy to hide from authorities, fuelling one of society’s most damaging phenomena: the shadow economy—that blurry area of commerce that includes legal activity hidden deliberately from public authorities.

The shadow economy in Europe today is worth more than €2.1 trillion.

It is facing increased scrutiny as national governments seek to balance budgets while avoiding the tax increases and benefit cuts that can hamper economic recovery. It is nurtured by several interlocking factors: the predominance of cash, a lack of transparency surrounding transactions, and limited enforcement of laws. The shadow economy offers questionable individual benefits at the expense of many, resisting the world’s Increasing digitalisation and connectivity and hampering the public good.

A.T. Kearney and Friedrich Schneider, PhD, professor of economics and chairperson of the Department of Economics at Johannes Kepler University in Linz, Austria, have teamed up once again to study the structure of the shadow economy in Europe and identify measures to reduce it. The study is based on an analysis of the shadow economy within 12 industry sectors in six focus countries in Europe (see appendix: About the Study on page 20). This report examines the findings of our study and how to address them.