The Black Economy

The black economy is a clandestine market or transaction that involves illegality. This includes the drug trade, counterfeiting, prostitution (where prohibited), smuggling, illegal currency transactions, and income tax evasion.

Because tax evasion is a criminal offence participant’s naturally attempt to hide their behavior from the government or regulatory authority. One way they do this is by transacting with cash (which doesn’t leave a footprint or record).

Although the actual size of the black economy is unknown, it’s thought to be enormous. The US government for example, has estimated that unreported US income exceeds $2 trillion resulting in an annual $450–$600 billion tax shortfall.

The black economy is epidemic in India with India having US$1,456 billion stored in Swiss banks in the form of unaccounted money (on which no taxes have been paid). According to the Swiss Banking Association, India has more black money than the rest of the world combined.