Official statistics for any country reflect registered, transparent economic transactions, by default failing to capture the full breadth of economic activity that can emanate from the "shadow economy." The so called shadow economy is any economic activity that is deliberately concealed from public authorities to avoid payment of income, value added or other taxes; to avoid payment of social security contributions; having to meet certain legal labour market standards, such as minimum wages, maximum working hours, safety standards, etc; and complying with certain administrative procedures, such as completing statistical questionnaires or administrative forms.*
Surprisingly, the unreported portion of economic activities for some countries exceeds 50 percent of GDP. In such countries as Bolivia, Georgia, Panama and Zimbabwe the size of the shadow economy during the period 1999-2007 was higher than 60 percent of official GDP estimates. In contrast, the weighted average share of the shadow economy is estimated to represent about 17 percent of the official world GDP with the United Kingdom, United States, Luxemburg, Austria, and Japan recording the smallest shadow economies during the period.
*Source: Schneider, Friedrich , Buehn, Andreas and Montenegro, Claudio E.(2010) 'New Estimates for the Shadow Economies all over the World', International Economic Journal, 24: 4, 443-461.
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What is the expenditure approach? The expenditure method to calculating GDP is an approch that totals consumption, investment, government spending, and net exports (exports minus imports).
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Source: UN National Accounts
Source: IMF World Economic Outlook, April 2014