The black or underground economy is the economic activity which is not measured by government statistics. This can include a range of different economic activities not measurable by the government. It includes:
- Selling goods illegally e.g. criminal goods
- Selling goods / services and not declaring income earnt.
- Self sufficiency. If a farmer grows his own food, he will not appear to have any income, his sustenance comes from his own produce, but, there is no buying and selling.
Problems of Black Economy
Economic activity which is not recorded can create a real problem for governments.
- Difficult to measure GDP and living standards.
- Difficult to regulate standards in the black economy.
- Often related to criminal activity.
- Loss of Tax Revenue
- Inequality. Firms benefit from avoiding paying tax.
Size of the Black Economy
- UK 7% of GDP
- US 8% of GDP
- Italy 30%
- Russia 40-50%
- Sub Saharan Africa 50-60%
- China 20%
- Japan, 6%