Experimental statistics: Exhaustiveness adjustments in GDP, Slovenia, 2019

GDP exhaustiveness adjustments represented 7.6% of GDP in 2019

In Slovenia, GDP exhaustiveness adjustments in 2019 amounted to EUR 3,679 million, which is 7.6% of GDP. Exhaustiveness adjustments include the so-called »shadow economy«.

  • 8 January 2021 at 10:30
  • |
  • Experimental statistics
Gross domestic product compilation requires exhaustive coverage of economic activity

In calculating gross domestic product (GDP), the EU Member States must fulfil two basic requirements: exhaustiveness and comparability of GDP and gross national income (GNI). The reason for this is financing of the EU by Member States with the so-called »GNI contribution« or the fourth own resource of the EU, which Member States must pay every year. Because contributions of Member States based on GDP/GNI are proportional, the GDP/GNI estimate must be exhaustive, which provides a comparable level of GDP estimate between Member States.

GDP covers total production in a country in line with the European System of National and Regional Accounts (ESA 2010). GDP thus covers total production of goods (for the market and for own consumption), production of market services and two types of services that households produce for own needs (imputed rentals and domestic services by paid staff). As a result, this means that 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 units that avoid paying social and health contributions, income tax and other compensation and taxes
  • All illegal activities

GDP exhaustiveness adjustments

There are seven types of adjustments* that contribute to exhaustive coverage of economic activity as the basis of GDP compilation:
  • N1 – adjustments for units that partly or entirely avoid registration (tuition, child care, alternative medicine 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 (did not submit accounting statements);
  • N5 – adjustments for the self-employed (mostly sole proprietors) not covered by the data sources (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 official GDP estimate for Slovenia covers all activities, including the ones that are not included in statistical and administrative records and are therefore estimated with indirect methods. All exhaustiveness adjustments are thus covered. Table 1 shows exhaustiveness adjustments for 2019 by the output approach 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, all exhaustiveness adjustments for 2019 amounted to EUR 3,679 million, which is about 7.6% of GDP. The highest exhaustiveness adjustment is that for 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. 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.

Compared to our previous publication of exhaustiveness adjustments (for 2010), we implemented many improvements in GDP compilation. Following Eurostat's requirements, we included within exhaustiveness adjustments the intermediate consumption in garden production by non-agricultural households, non-collected VAT due to insolvencies, own-account research and development and we aligned the valuation of other own-account production. In addition, following the new guide for process tables for the compilation of GNI we reclassified from exhaustiveness adjustments to conceptual adjustments the work of students, private use of business cars and allowances for business travel. According to improved methodology, the exhaustiveness adjustments were 8.6% for 2010 (9.8% before revision). 

The main problem in calculating GDP is measuring the activity of units that are not included in official statistical and administrative sources and records, do not pay taxes, operate on the edge of legality or even illegally. There are different names for this phenomenon, such as hidden economy, non-observed economy and shadow economy. Eurostat has not determined a common definition of 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 interesting

The concept of shadow economy in Slovenia almost without exception relates to tax evasion or that part of economic activity for which the 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. units that should be registered and units that misreport deliberately (show inflated costs and/or hide revenues). These two types of exhaustiveness adjustments amounted to EUR 1,915 million or 4.0% of GDP in 2019. 

N1 type of exhaustiveness adjustment covers activities that are not registered (undeclared work), i.e. activities for which the producers avoid registration entirely or partly. 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 lodging services (for tourism purposes), transport by taxi, tuition of pupils and students at home, alternative medicine, 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 2019 estimate shows that this exhaustiveness adjustment was EUR 219 million or 0.5% 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 reduce their tax burden. This type of exhaustiveness adjustment happens mostly in small enterprises with few employees. A simple analysis of financial statements shows that sole proprietors often earn less than their employees do. A special problem is services performed for households and paid in cash as well as well-known examples of finishing works in construction and other services performed directly for households. In 2019, this type of exhaustiveness adjustment was EUR 1,696 million or 3.5% of GDP (3.7% in 2010).

If we added to these two types of adjustments also the adjustments for illegal activities, the shadow economy would be 4.2% of GDP in 2019 (4.6% in 2010).

* More details on the classification of exhaustiveness adjustments on the CIRCABC portal.
Table 1: GDP exhaustiveness adjustments by the output approach (increase in value added), Slovenia, 2019
million EUR% GDPStructure %
N1 – Units that partly or entirely avoid being registered2190.56.0
N2 – Illegal activities1150.23.1
N3 – Activities that do not need to be registered6181.316.8
N4 – Legal persons not covered by sources1880.45.1
N5 – Self-employed not covered by sources110.00.3
N6 – Deliberate misreporting1,6963.546.1
N7 – Other statistical deficiencies and adjustments8311.722.6
Total3,6797.6100.0
Source: SURS
Table 2: GDP exhaustiveness adjustments by the output approach (increase in value added), Slovenia, 2010
million EUR% GDPStructure %
N1 – Units that partly or entirely avoid being registered2020.66.5
N2 – Illegal activities1290.44.1
N3 – Activities that do not need to be registered5711.618.3
N4 – Legal persons not covered by sources2550.78.2
N5 – Self-employed not covered by sources320.11.0
N6 – Deliberate misreporting1,3463.743.2
N7 – Other statistical deficiencies and adjustments5831.618.7
Total3,1198.6100.0
Source: SURS
METHODOLOGICAL NOTE
Exhaustiveness adjustments in the context of the so-called »shadow economy« are published as experimental statistics, because the connection between the two is not straightforward. The purpose of national accounts statistics is not to identify the »shadow economy«, but to ensure the inclusion of such activities in GDP as well. European national accounts statistics do not define the »shadow economy«, but the exhaustiveness of economic activities. We advise caution also regarding the use of data for comparison of exhaustiveness adjustments between countries. These adjustments are different in each country; they depend on data sources and other resources available to a particular country.
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