The Underground Economy By William CateThe estimates of scale of present American underground economy range between $800 billion to $2.8 trillion per year. The American Revolution was essentially a conflict between a Colonial Underground Economy and British Empire. Among early problems for newly formed United States was Whiskey Rebellion of 1794. A conflict over taxes and government services between Washington and Western Pennsylvania.
The history of civilization is a history of economic duality between a traditional economy and an underground economy. They are yin and yang of economic balance. Economic stability and prosperity favors traditional economy. Economic uncertainty, excessive regulation, taxes and growing unemployment favor underground economy.
As any Government's economy tanks, citizens' standard of living falls and unemployment jumps, underground economy grows. As business people find it increasingly difficult to make a living in traditional economy, underground economy grows.
The underground economy is all revenues generated in a country that isn't reported to government for tax, regulation or other reasons. The best guess is these revenues represent between 20% and 30% of GNP in Western Europe and North America.
Rapid growth of underground economy has been trend in United States and Western Europe for past decade. In last thirty years, economists estimate that underground economy has doubled. Currently, underground economy is growing faster than traditional U.S. Economy.
In United States, IRS estimates that underground economy may represent as much as 40% of GNP. In some countries, like North Korea, estimate is that 80% of North Korean GNP goes unreported as part of their underground economy. The Kyrgyz Republic's economy is primarily an underground economy. Economic instability means a strong underground economy.
Historically, underground economy has been a cash economy. The European Union's currency is Euro. It's now competing for underground economy's business by having 500 Euro bills. It's worth more than five times U.S. Dollar. We haven't printed a larger bill than $100 bill in over than 50 years. One million dollars in $100 bills fits into a briefcase. But, one million U.S. Dollars worth of 500 Euro bills would fit into a purse. The smaller bill stack is a major advantage in underground world. The underground economy results from many factors, including criminal activity. But bulk of it arises from ordinary businessmen and workers who are evading taxes, government regulations or can't find meaningful employment in traditional economy.
The Underground Economy can be divided into at least six sub-economies. Scholars should name these sub-economies, since members of one sub-economy often have little in common with their counterparts in another sub-economy. The sub-economies appear in almost every country.