Convertibility of Black Money: Indian Case
1. What is black money?
Black money is essentially the currency used in ‘black economy’. Black, shadow, underground, unobserved, unofficial, subterranean, unrecorded, informal, irregular, second, twilight, parallel – are all the synonyms used for the ‘shadow economy’. The shadow economy basically consists of legal and illegal activities outside the reach of the government.
Smith (1985, p.18) provides a very broad definition of the shadow economy as ‘market based production of goods and services, whether legal or illegal, that escape detection in the official estimates of GDP’. Table 1 gives a better view of what a reasonable definition of underground economy includes.
Underground economic activities are all illegal actions that fit the characteristics of classical crime transactions like burglary, robbery, drug dealing, etc. Informal household economy consists of household enterprises that
(1) are small in terms of persons engaged, and
(2) are not registered officially under various specific forms of national legislation.
2. Why is there a shadow economy?
The growth of the underground economy is associated with various factors, such as rise in taxes and social security burdens, intensity of regulations in the official economy, especially the labour markets including forced reduction of weekly working time, early retirement, prohibition of not working at more than one office for government officials etc. Apart from economic factors certain non-economic factors also lead to the expansion of the underground economy such as unwillingness to show the accurate income etc. According to Schneider and Enste (2000) micro- sociological and psychological approaches provide interesting insights in the decision-making process of individuals choosing to work underground. For example, the decline of civic virtue and loyalty towards public institutions and decline in tax morale of the people.
Burden of Tax and Social Security Contributions
The most important
Black money is essentially the currency used in ‘black economy’. Black, shadow, underground, unobserved, unofficial, subterranean, unrecorded, informal, irregular, second, twilight, parallel – are all the synonyms used for the ‘shadow economy’. The shadow economy basically consists of legal and illegal activities outside the reach of the government.
Smith (1985, p.18) provides a very broad definition of the shadow economy as ‘market based production of goods and services, whether legal or illegal, that escape detection in the official estimates of GDP’. Table 1 gives a better view of what a reasonable definition of underground economy includes.
Underground economic activities are all illegal actions that fit the characteristics of classical crime transactions like burglary, robbery, drug dealing, etc. Informal household economy consists of household enterprises that
(1) are small in terms of persons engaged, and
(2) are not registered officially under various specific forms of national legislation.
2. Why is there a shadow economy?
The growth of the underground economy is associated with various factors, such as rise in taxes and social security burdens, intensity of regulations in the official economy, especially the labour markets including forced reduction of weekly working time, early retirement, prohibition of not working at more than one office for government officials etc. Apart from economic factors certain non-economic factors also lead to the expansion of the underground economy such as unwillingness to show the accurate income etc. According to Schneider and Enste (2000) micro- sociological and psychological approaches provide interesting insights in the decision-making process of individuals choosing to work underground. For example, the decline of civic virtue and loyalty towards public institutions and decline in tax morale of the people.
Burden of Tax and Social Security Contributions
The most important
Bibliography: 1. Feige, E. L. (ed.) (1989) The Underground Economies. Tax Evasion and Information Distortion. Cambridge University Press. 2. “The Underground economy: Minimizing the size of government”, March 1998 by David E A Giles, Department of Economics, University of Victoria, Victoria, B.C. 3. Working paper “The Size and Development of the Shadow Economies in the Asia-Pacific”, April 2003 by Friedrich Schneider and Christopher Bajada 4. “Shadow Economies and Corruption all over the World: What do we really know?”, September 2006 by Friedrich Schneider, Professor of Economics, Department of Economics, Johannes Kepler University of Linz, Austria 5. “Does the shadow economy pose a challenge to the economic and public finance policy? Some preliminary findings” , March 2007, by Friedrich Schneider, Professor of Economics, Department of Economics, Johannes Kepler University of Linz, Austria 6. www.freedomindia.com 7. Bruno S. Frey and Friedrich Schneider, “Informal and Underground Economy” International Encyclopedia of Social and Behavioral Science, Bd. 12 Economics, Amsterdam: Elsevier Science Publishing Company, 2000.