The Underground Economy: Causes, Extent, Approaches

The underground economy (or illegal economy) covers market production of goods and services, legal and illegal, which are sold or purchased illegally. It is composed of both the irregular economy, where legal goods and services are produced and exchanged under illegal conditions, and (productive) black markets, the preserve of goods and services that are illegal but satisfy all the parties involved. History presents us with a large number of prohibition and taxation events that gave rise to contraband. However, smuggling and other forms of underground markets are not only a historical phenomenon, but an everyday fixture of contemporary economies: drugs, alcohol, fuel, tobacco, etc. One should not think of the underground economy as only black markets or smuggling on irregular markets. The irregular economy mainly includes otherwise legal services sold “under the table” like labour services sold to businesses or individuals (in residential construction and renovation, for example). […] To deal with the underground economy, four public policy approaches are possible.

Links of interest

Media Release: A new approach is needed to tackle the underground economy