World Bank urges Eastern Europe to curb 'shadow economy'

(BRUSSELS) - Eastern Europe needs to curb its "shadow economy" to weather Europe's current financial crisis and promote growth, the World Bank said in a new report Monday.

"Too many of Eastern Europe's workers and firms are engaged in the 'shadow economy' -- doing business and work in untaxed and unregulated markets for goods and services," according to the report "In From the Shadow: Integrating Europe's Informal Labor."

"As the impacts of the euro crisis, population ageing, and labor force shrinkage spread to emerging economies of Eastern Europe, bringing workers and firms in from the shadow economy is critical for long-term economic growth in Eastern Europe," the Washington-based development lender said.

The report was launched in Brussels at a joint Centre for European Policy Studies-World Bank conference.

"The governments of the new (EU) member states in Eastern Europe simply cannot afford a large shadow economy, neither in the short run due to fiscal concerns, nor in the long run due to the shrinking labor force," Katarina Mathernova, a World Bank senior adviser, told the conference.

Mathernova said the World Bank was continuing its role as a partner with the European Union in determining how to improve the economic performance of its newest members.

The report calls for promotion of the social value of paying taxes and gaining citizens' trust in their governments.

"Improved and sustainable high levels of tax morale can only be achieved through a successful liaison of three factors: corruption control, the quality of institutions, and the degree of citizens' participation," the World Bank said.