Estimating the size of non-observed economy in Croatia using the MIMIC approach

This paper gives a quick overview of the approaches that have been used in the research of shadow economy, starting with the definitions of the terms “shadow economy” and “non-observed economy”, with the accent on the ISTAT/Eurostat framework. Several methods for estimating the size of the shadow economy and the non-observed economy are then presented. The emphasis is placed on the MIMIC approach, one of the methods used to estimate the size of the nonobserved economy. After a glance at the theory behind it, the MIMIC model is then applied to the Croatian economy. Considering the described characteristics of different methods, a previous estimate of the size of the non-observed economy in Croatia is chosen to provide benchmark values for the MIMIC model. Using those, the estimates of the size of non-observed economy in Croatia during the period 1998-2009 are obtained.