ROME (Bloomberg) — Italy's underground economy has swelled to "embarrassing" proportions and may be much larger than predicted, Deputy Finance Minister Vincenzo Visco said.The proportion of tax evasion in relation to gross domestic product in the north of Italy is "much lower" than in the south, while the total amount of taxes not paid in the north is higher than in other regions, Visco told a Senate hearing in Rome today.

"The underground economy seems to make up about 16 to 17 percent of GDP, but specific studies on tax evasion say that the results are much higher," Visco said. "The estimates indicate evasion to be at about 27 percent of GDP, which is a somewhat embarrassing magnitude."

Prime Minister Romano Prodi put Visco in charge of efforts to crack down on tax evasion. Italy's so-called black economy was worth [EURO]246 billion in 2004, an increase of 5.2 percent from the previous year, according to the latest data available from Italy's statistics office. That's 17.7 percent of gross domestic product.

Italy's self-employed, ranging from plumbers to taxi drivers, often fail to declare income and are the country's biggest tax-dodgers, according to a September study by the tax collection agency.