The shadow economy should be included in credit rating calculations for European countries

In today’s uncertain investment environment, the reliability of sovereign risk indicators is key. Miroslava Kostova Karaboytcheva and Carolina Silva argue that, in spite of the clear link that has been drawn between the informal economy of a country and its sovereign risk, this aspect is still not taken into enough account. They propose a way of improving credit ratings estimation by involving a new factor: the shadow economy as a percentage of GDP.