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Book Title

Modelling Shadow Economies – Sizes, Causes and Consequences


This book documents the estimated size of the “shadow”, “hidden” or “uncovered” economic activities and their causes and consequences. It is a part of a research effort to understand the nature of shadow economic activities and labour market structures that are excluded from the official statistics. This book helps to educate and expose the general public, academics industry participants, and policymakers to the seriousness of the negative repercussion of the shadow or underground economy for any nation. The presence of a shadow economy in any country is an unavoidable aspect of life. The shadow economy is sometimes linked to criminal activity. The shadow economy diminishes the tax base and, as a result, overall tax collection, potentially crippling an economy. Furthermore, because the shadow economy’s activity is excluded from official GDP data, official GDP numbers will provide incorrect indications for macroeconomic policy decisions. Aside from that, the existence of the shadow economy creates opportunities for resource allocation distortions, particularly in the labour market, where firms participating in underground face unhealthy and unsafe working conditions, very low wages, and no job security net. As long as the shadow economy is large, the leakage or loss of tax income due to tax evasion would be large as well. Taxation revenue is critical to the elected government of all nations.

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