The underground economy in Italy is worth 197.6 billion euros, equal to 9.2% of national wealth. This is what emerges from Focus Censis-Confcooperative on work and the irregular economy. The size of the phenomenon is comparable to the GDP of Emilia-Romagna and represents a theoretical cost of approximately 3,350 euros for each Italian. The figure includes not only tax evasion, but also irregular work, undeclared income and activities that escape the regular circuit. According to the report, the underground economy takes resources away from general taxation, reduces workers’ rights and alters competition between companies.
The three components of the underground economy
The Italian underground is made up of three great voices. The most significant is the under-declaration of income, which is worth 108.2 billion euros and increased by 21.6% compared to 2019. The second component is irregular work, estimated at 77.2 billion. Added to this are 12.2 billion linked to other items, such as illegal rent and undeclared tips. The data shows that the growth of the underground economy does not only depend on illegal work, but also on the failure to declare income by businesses, professionals and the self-employed. The underground economy therefore has a theoretical cost of 3,350 euros for each Italian.
In 2024, there will be 2 million 725 thousand irregular workers. The number is slightly lower than 2019, but remains high. The pay gap is very large. An irregular worker earns on average 9.2 euros gross per hour, compared to 17.8 euros for a regular worker. The average loss is 48.3%. In industry the gap reaches 53.5%, with 9.4 euros per hour for irregular workers versus 20.2 euros for those who work regularly.
The burden on tax evasion
Between 2019 and 2023, tax and contribution evasion remained between 99 and 103 billion euros per year. Almost 90% involve lost tax revenue. VAT weighs around 30 billion, while the personal income tax not paid by self-employed workers and businesses exceeds 36 billion.
The average propensity to evade is 17.4%. This means that, for every 100 euros of expected revenue, almost 17 do not reach the State. The highest figure concerns the Irpef of self-employed workers and businesses, with a rate estimated at 60.6%.
The underground economy has a direct impact on public finances. According to Focus, between 2021 and 2023 lost tax and social security revenues reached 313 billion euros. This is a figure 88 billion higher than the overall allocation of the PNRR intended for Italy.
Less income means fewer resources for healthcare, pensions, services and investments. The report also calls for simulations according to which a structural improvement in tax compliance could help reduce the debt-to-GDP ratio by 2041.
Unfair competition for regular businesses
The underground economy does not only weigh on the State. It also affects businesses that comply with rules, contracts and tax obligations. A company that pays regular taxes, contributions and wages must compete with those who can charge lower prices because they operate irregularly or declare less than they should. The undeclared economy therefore becomes a distortion of the market. It penalizes fair businesses, reduces worker protections and shifts part of the cost of public services to regular taxpayers.
According to the Censis-Confcooperative Focus, the fight against undeclared work requires structural interventions. Among the tools indicated there are greater traceability, cross-referencing of databases, incentives for disclosure and employment policies capable of reducing the convenience of irregularity.
