Informal and underground economy
There is a widespread feeling that a substantial and increasing share of activities take place outside the official economy. This holds, in particular, for developing and transition but also for high income economies. Such activities are unrecorded by the system of national income accounting, which has become the accepted standard in all countries of the world. The existence and increase of an underground economy gives rise to three major sets of concerns. The economic and social conditions of individuals, household and countries are evaluated in a biased way if one relies on the official statistics. Thus, the official number of unemployed persons may hide that an (unknown) share of them actually work and receive wage income. As a consequence, the macro economic policies are likely to be too expansionary and social policy too excessive. A second concern is the loss of tax revenue as underground activities escape taxation. A third concern interprets the underground economy as an indicator of an unhealthy state between citizens and government. The taxpayers are dissatisfied with what public services they get for their contributions and seek to restress the balance by evading to the underground economy. It is feared that such reaction makes government unable to finance the public goods necessary for an economy and society. In contrast, opponents of government welcome such a development.
|Date of creation:||Feb 2000|
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- Adam, M.C. & Ginsburgh, V., "undated".
"The effects of irregular markets on macroeconomic policy. Some estimates for Belgium,"
CORE Discussion Papers RP
662, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Adam, M. C. & Ginsburgh, V., 1985. "The effects of irregular markets on macroeconomic policy : Some estimates for belgium," European Economic Review, Elsevier, vol. 29(1), pages 15-33.
- Marie Christine Adam & Victor Ginsburgh, 1985. "The effects of irregular markets on macroeconomic policy: some estimates for Belgium," ULB Institutional Repository 2013/1757, ULB -- Universite Libre de Bruxelles.
- James Andreoni & Brian Erard & Jonathan Feinstein, 1998.
Journal of Economic Literature,
American Economic Association, vol. 36(2), pages 818-860, June.
- Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, December.
- R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
- Enste, Dominik & Schneider, Friedrich, 1998. "Increasing Shadow Economies all over the World - Fiction or Reality?," IZA Discussion Papers 26, Institute for the Study of Labor (IZA).
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