Underground Economy
Underground economy
The underground economy or black market is a market where all commerce is conducted without regard to taxation, law or regulations of trade. The term is also often known as the underdog, shadow economy, black economy, parallel economy or phantom trades.
In modern societies the underground economy covers a vast array of activities. It is generally smallest in countries where economic freedom is greatest, and becomes progressively larger in those areas where corruption, regulation, or legal monopolies restrict legitimate economic activity.
The black or underground economy is the economic activity which is not measured by government statistics. This can include a range of different economic activities not measurable by the government, such as: smuggling alcohol, tobacco and fuel,weaponry prostitution, copyrighted media,illegal drugs. It includes: ▪ Selling goods illegally e.g. criminal goods; ▪ Selling goods and services and not declaring income earnt; ▪ Self sufficiency (If a farmer grows his own food, he will not appear to have any income, his sustenance comes from his own produce, but, there is no buying and selling).
Economic activity which is not recorded can create a real problem for governments, such as: ▪ Difficulty in measuring GDP and living standards. ▪ Difficulty in regulating standards in the black economy. ▪ Criminal activity. ▪ Loss of Tax Revenue ▪ Inequality. Firms benefit from avoiding paying tax.
Size of the Black Economy: o UK 10,6% of GDP o US 8% of GDP o Italy 30% o Russia 40-50% o Sub Saharan Africa 50-60% o China 20% o Japan, 6%
There are various methods for estimating underground economy. The optimum method for a country depends on the features of its economy, and its tax and legal system. Based on some common features, the methods can be classified in the following way:
a) Direct methods:
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The underground economy or black market is a market where all commerce is conducted without regard to taxation, law or regulations of trade. The term is also often known as the underdog, shadow economy, black economy, parallel economy or phantom trades.
In modern societies the underground economy covers a vast array of activities. It is generally smallest in countries where economic freedom is greatest, and becomes progressively larger in those areas where corruption, regulation, or legal monopolies restrict legitimate economic activity.
The black or underground economy is the economic activity which is not measured by government statistics. This can include a range of different economic activities not measurable by the government, such as: smuggling alcohol, tobacco and fuel,weaponry prostitution, copyrighted media,illegal drugs. It includes: ▪ Selling goods illegally e.g. criminal goods; ▪ Selling goods and services and not declaring income earnt; ▪ Self sufficiency (If a farmer grows his own food, he will not appear to have any income, his sustenance comes from his own produce, but, there is no buying and selling).
Economic activity which is not recorded can create a real problem for governments, such as: ▪ Difficulty in measuring GDP and living standards. ▪ Difficulty in regulating standards in the black economy. ▪ Criminal activity. ▪ Loss of Tax Revenue ▪ Inequality. Firms benefit from avoiding paying tax.
Size of the Black Economy: o UK 10,6% of GDP o US 8% of GDP o Italy 30% o Russia 40-50% o Sub Saharan Africa 50-60% o China 20% o Japan, 6%
There are various methods for estimating underground economy. The optimum method for a country depends on the features of its economy, and its tax and legal system. Based on some common features, the methods can be classified in the following way:
a) Direct methods:
•