Underground Economy

The underground economy encompasses any economic activity not reported to the government and, therefore, beyond the reach of tax collectors and regulators. The term may refer to either illegal activities or to ordinarily legal activities performed without the securing of required licenses and [Page 3467]payment of taxes. Synonymous terms, especially when applied to these latter activities, are shadow economy and working off the books. Examples of legal activities in the underground economy include unreported income from self-employment, barter, do-it-yourself work, and neighbor help. Illegal activities include drug dealing, trade in stolen goods, smuggling, illegal gambling, fraud, and theft.

The size of the underground economy in the United States has been estimated to be $1 trillion in 2005. This represents about 9% of the total U.S. GDP. ...