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Estonia's shadow economy grew fastest in Baltics last year
🇪🇪 Estonia /Economy & Trade

Estonia's shadow economy grew fastest in Baltics last year

From Postimees · () Estonian

Translated from Estonian, summarized and contextualized by DistantNews.

At a glance

News Named sources Outcome reported
  • The shadow economy in the Baltics is estimated at 20-24% of GDP, with Estonia showing the fastest growth.
  • In Estonia, undeclared income, "envelope" wages, and bribery reached their highest levels since 2009.
  • While Lithuania has the largest shadow economy share, Estonia's is the lowest but growing, with no statistically significant differences between the Baltic states.

The shadow economy across the Baltic states is substantial, hovering between 20% and 24% of GDP, with Estonia experiencing the most rapid expansion. In Estonia, "envelope" wages, undeclared income, and bribery have surged to their highest points since 2009, according to a recent study.

The shadow economy in the Baltics is at the level of 20–24% of GDP, the lowest in Estonia, but on a growth trend.

— Arnis SaukaSauka, director of the Centre for Sustainable Business at the Riga School of Economics, presented these findings at a conference on the shadow economy.

Arnis Sauka, director of the Centre for Sustainable Business at the Riga School of Economics, reported that Latvia's shadow economy grew by 0.4 percentage points last year, while Estonia saw a 1.3 percentage point increase. Lithuania, however, experienced a decrease. Latvia's shadow economy constituted 21.8% of its GDP, whereas Estonia's grew to 20.8% from 19.5% in the previous year. Lithuania's share declined to 23.6% of GDP.

Sauka noted that Latvia's shadow economy has halted its decline observed since 2022. He emphasized that statistically significant differences in the size of the shadow economy among the Baltic states have largely disappeared. Lithuania still has the largest share, though it is decreasing, while Estonia's is the smallest but on an upward trend.

In Estonia, undeclared wages, undeclared income, and bribery reached their highest level since 2009.

— Arnis SaukaThis highlights the concerning rise in illicit economic activities in Estonia.

The study also revealed that in 2025, Estonia recorded its highest shadow economy level since 2009, when measurements began. Sauka suggested that the lack of major shifts might be due to the lingering effects of the COVID-19 pandemic and the war in Ukraine on previous years' data, with the full impact of the 2025 Iranian and oil crises yet to be reflected.

There are no statistically significant differences between the Baltic states in the size of the shadow economy.

— Arnis SaukaSauka pointed out the convergence in shadow economy levels across the region.

Key components of the shadow economy vary. In Latvia, undeclared wages were the most significant factor in 2025, accounting for 47.1% of the total shadow economy. Undeclared income represented 25.5%, and undeclared employees 27.4%. In contrast, Estonia saw a rise in "envelope" wages, reaching 17.9%, an increase of 0.7 percentage points from 2024. Undeclared income or profit also grew significantly in Estonia, rising by 3.9 percentage points to 16% of GDP.

In Estonia, however, the share of envelope wages continued to rise in 2025, reaching 17.9%, which is 0.7 percentage points more than in 2024.

— Study resultsThis detail from the study illustrates the specific trend of "envelope" wages in Estonia.
DistantNews Editorial

Originally published by Postimees in Estonian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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