The Underground Economy

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The post-war period was the starting point of economic development, when many countries gained autonomy to form their own national government. An excruciating recession was controlled by austerity. So when we speak of a developed society, it is commonly associated with a vast and great variety of goods and services, a healthy environment, luxuries, a moderate level of equality, a society free of violence and discrimination. Most of us insist that the minimum requirement of a developed society consists of a high quality life. This means that development is also the eradication of poverty and starvation; it is an increase in life expectancy, access to sanitation, and access to education, to mention some. Economic development is one of the main…show more content…
There is a large and growing segment of economic activity that is not reported: the underground economy. But to measure underground economy first face the dilemma of defining it, which is a complex process that cannot be fully comprehended empirically. A taxonomic framework is required to joint the relationship between tax evasion, illegal activities, and information-distorting activities. The underground, hidden, informal and clandestine economy is not composed of illicit activities, but also undeclared income that comes from the production of legal goods and services, both monetary transactions and barter transactions. Therefore, the underground economy includes all economic activity that, in general, would be subject to taxes if it were declared to the tax authorities. However, it is very clear that the underground economy is an inescapable component of countries throughout the world. In one-way or another, it has existed and will prevail in societies, whether in a higher or lower degree. The size, motives and repercussions differ from country to country, but the similarities are important in order to deal with this phenomenon in order to create effective economic policy decisions, as its consequences on economic and social development are important. It is in constant evolution and adapts to changes in the tax system and regulations but it is difficult to gather information about it as no one engaged…show more content…
Schneider and D. Enste showed, in the early 1900s, estimates based on electricity, being a physical input, and currency demand approaches in order to contrast the size of the underground economy with the official Gross Domestic Product (GDP) in three main groups of countries; development, transition and 21 advanced economies, the latter all members of the Organization for Economic Cooperation and Development (OECD). In the first group (developed countries), it was shown that Nigeria had the largest underground economy with 77% of its GDP, almost three-quarters the size of GDP. South Africa was the smallest shadow economy with 11% of GDP. In the second group (transition countries), Georgia's underground economy was the largest with 64% of GDP. Uzbekistan was the smallest with 9%. In the third group (advanced economies), the biggest shadow economy belonged to Greece with 30% of GDP. And the smallest was Chez Republic with 10% of GDP, a small public sector. There is undoubtedly a relation between GPD and underground economy; the impact of underground economy is relevant on GDP per capita and any boost of hidden activities causes an effect on official GDP. What is interesting is that some studies show that the hidden economy affects the official GDP growth, while some studies say the opposite. More research is needed in order to acquire an approach on what effect does the underground economy has on the official economy and why people work in it, as the effects are ambiguous.

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