Experimental statistics: Exhaustiveness adjustments in GDP, Slovenia, 2023

Gross domestic product compilation requires exhaustive coverage of economic activity

In calculating gross domestic product (GDP), EU Member States must fulfil a basic methodological requirement: exhaustiveness of gross domestic product and gross national income (GNI). The reasons are the need for a realistic presentation of the economy, comparability of data over time and between countries, and the use of these data for the financing of the EU by Member States with the so-called GNI contribution or the fourth own resource of the EU. Because Member States’ contributions are proportional to the size of their GNI, GDP and GNI estimates must be exhaustive.

GDP covers total production in a country according to the European System of National and Regional Accounts (ESA 2010). GDP thus covers total production of goods (both for the market and for own consumption), production of market services, and two types of services produced by households for own needs (imputed rentals and domestic services performed by paid staff). This means that the GDP estimate covers:

• all activities that are taxed (legal activities);
• all activities that are legal but are not taxed;
• all activities that are taxable but are conducted illegally; these are mostly activities of producers that avoid paying social and health contributions, income tax and other compensation and taxes;
• all illegal activities.

GDP exhaustiveness adjustments

If standard data sources do not cover all economic activities, adjustments are needed in their estimation. There are seven types of adjustments:

• N1 – adjustments for producers that partly or entirely avoid registration (tuition, child care, alternative healing etc.);
• N2 – adjustments for illegal activities (i.e. activities that are against the law: prostitution, drug trafficking);
• N3 – adjustments for activities of households that do not need to be registered (e.g. own-account construction activity);
• N4 – adjustments for legal persons not covered by the data sources (e.g. did not submit accounting statements);
• N5 – adjustments for the self-employed (mostly sole proprietors) not covered by the data sources (e.g. did not submit accounting statements or tax declarations);
• N6 – adjustments for deliberate misreporting (particularly inflating costs and hiding revenues);
• N7 – other statistical deficiencies and adjustments.

The GDP estimate for Slovenia covers all activities, including those not included in statistical and administrative records, which are therefore estimated with indirect methods. All exhaustiveness adjustments are thus covered. Table 1 shows exhaustiveness adjustments for 2023 by the output approach to GDP estimation as increase in value added. Value added is the difference between (a) the value of goods and services produced and (b) the costs of goods and services used in this production.

In Slovenia, total exhaustiveness adjustments for 2023 amounted to EUR 4,854 million, or 7.6% of GDP. The largest exhaustiveness adjustment relates to misreporting (46.1% of total exhaustiveness adjustments).

Exhaustiveness adjustments are not directly comparable between countries because they depend on the specific statistical system of a country. What is comparable are exhaustive GDP estimates. The countries differ in terms of data sources they use and that thereby require different adjustments. Most EU Member States have adjustments between 1% and 15% of GDP, 8% on average.

The main problem in calculating GDP is estimating the activity of producers that are not included in official statistical and administrative sources and records, do not pay taxes, or operate on the edge of legality or even illegally. There are different labels for this phenomenon, such as hidden economy, non-observed economy and shadow economy. European statistics have not determined a common definition of the shadow economy; it is, however, clear that some exhaustiveness adjustments can be classified as shadow economy. The concept of shadow economy is thus narrower than the presented GDP exhaustiveness adjustments.


In terms of the shadow economy, two types of GDP exhaustiveness adjustments are particularly important

The concept of shadow economy in Slovenia almost invariably relates to tax evasion or that part of economic activity for which entities do not pay taxes and social contributions. In terms of tax evasion, two types of exhaustiveness adjustments are particularly interesting: N1 and N6 – i.e. producers that should be registered and producers that deliberately misreport (show inflated costs and/or hide revenues). These two types of exhaustiveness adjustments amounted to EUR 2,662 million or 4.2% of GDP in 2023.

N1 type of exhaustiveness adjustment covers activities that are not registered (undeclared work), i.e. activities for which the producers partly or entirely avoid registration. These activities are not included in standard sources for GDP compilation or it is estimated that reporting is so incomplete that adjustment is necessary. Such activities are accommodation services (for tourism purposes), transport by taxi, tuition of pupils and students at home, alternative healing, and child care and similar housekeeping services at home. Exhaustiveness adjustments are indirect, based on estimating the number of persons engaged in a specific activity and other relevant indicators (e.g. number of overnight stays). The 2023 estimate shows that this exhaustiveness adjustment amounted to EUR 424 million or 0.7% of GDP (0.6% in 2010).

N6 type of exhaustiveness adjustment covers officially registered enterprises that show in their accounting statements lower revenues (do not issue invoices for work done) or higher costs (include invoices for goods/services that have not been delivered/performed) than should actually be recorded. In this way, they mainly reduce their tax burden. This type of exhaustiveness adjustment happens mostly in small enterprises with up to three employees. Accounting statements show that self-employed entrepreneurs often earn less than their employees, which implies lower reliability of reported data in such cases. A particular problem is also services performed for households and paid in cash, examples being finishing works in construction and other services performed directly to households. In 2023, this type of exhaustiveness adjustment amounted to EUR 2,237 million or 3.5% of GDP (3.7% in 2010).

If adjustments for illegal activities were added to these two types of adjustments, the shadow economy would represent 4.3% of GDP in 2023 (4.6% in 2010).