Underground Economy

Basak Kus

The term underground economy refers to economic activities that circumvent the formal system of rules and regulations that organize the processes of production and exchange. Underground economies are classified depending on either the particular set of rules that such activities violate or the nature of production, distribution, and the final product. Within the first classification, four types of underground economies can be distinguished: the illegal economy, the unreported economy, the unrecorded economy, and the informal economy. Illegal economy refers to the production and exchange of prohibited goods and services, such as drugs or the sex trade. Unreported economy denotes activities that evade tax laws. The unrecorded economy consists of all activities that, under existing rules and regulations, should be recorded in national accounting systems (national income and product accounts) but are not. Finally, the informal economy comprises economic activities that circumvent the administrative rules covering property relationships, commercial licensing, Within ...

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