Authors: Mária Širaňová, Menbere Workie Tiruneh
Published: January, 2015

This paper aims to empirically explore dynamics of the Net errors and omissions in a small and open economy of Slovakia. Data on the Net errors and omissions during the 2008-2014 period, which is known as the Great Recession, seem to suggest that the change in trend has been predominantly a phenomenon of real economy, mainly the service sector. Even though the paper does not find evidence of illicit financing (hot money flows) during the period under investigation the link between evolution of foreign direct investments and the NeO might point to a possible tax optimization. Likewise, our estimates have not confirmed existence of a connection between the dynamics of NeO and trade misinvoicing for goods during the period. Given the absence of detailed bidirectional data on the service sector, the results need further empirical investigation to determine the true extent of the impact of service sector on the NeO item.

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