An international comparison of underground economic activity

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Size, Causes and Consequences of the Underground Economy, 2005, 1st, pp. 73 - 106
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Despite continuous government attempts to increase taxpayer compliance, the underground economy continues to offer an avenue for taxpayers to evade their tax paying obligations. The consequences are clear: policymakers have imperfect knowledge on the state of economic affairs, more so as underground economic activities increase. Estimating the size of the underground economy is an onerous task. Any serious attempt to gauge its size should be able to measure a broad range of activities. These activities may include income generated from (say) babysitting, bartering of services, income evaded by (say) a mechanic who chooses to report only part of their income, businesses that overstate their expenses, legitimate income earned and laundered abroad, and income concealed by welfare recipients. Many academic studies have simply focused on some aspects of the vast array of underground activities, and in doing so provide only a lower bound estimate of its size. Part of the problem is the complexity involved in attempting to capture the various facets of these activities. Most authors trying to measure the underground economy face the difficulty of how to define it. One commonly used working definition is all currently unregistered economic activities that contribute to the officially calculated (or observed) Gross Domestic Product.
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