Underground Economy The Rise Of The Shadow Economy

During the 1960s, the underground economy began to be discussed as an important economic and social issue in western economies and the U.S.A. In the eighties it became a problem discussed in all economies worldwide. There has been increasing distress about the hidden (or underground) economy among the people, politicians, and social scientists in the last various years.

The underground economy, which consists of all deals on which applicable taxes are being evaded, points to misleading macroeconomic signals and thus the application of irrational economic policies. A useful and commonly used practical definition of the underground economy is: All economic activities that contribute to value-added should be incorporated in national income in terms of national accounting conventions but are not registered by national measurement agencies.

First, the definition of the underground economy will be given. Second, the positive and negative effects will be explained. In the last part, the works to measure the underground economy and the dimension of the underground economy will be mentioned.

The phenomenon of the informal economy is described under various names in the literature, indicating various features of it: parallel economy, informal economy, unobserved economy, shadow economy, second economy, underground economy, marginal economy, illegal economy, unrecorded economy, hidden economy, unreported economy, the unofficial economy, dual economy, etc. These changes make it difficult to make a common definition. The term "underground economy" is the most comprehensive definition in academic studies, including illegality.

Informal economy refers to all economic deals and activities entered in official records, cannot be documented through legal documents, and are not considered in calculations of Gross Domestic Product (GDP).

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