What is the underground economy? Why do some countries have larger underground economies than others

Hi there

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. It can come in the form of bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

It can be particularly widespread in industry sectors where cash transactions are common, such as retail, hospitality, and construction, including home renovations

Underground economy is the black market.. And example would be people bootlegging cartons of cigarettes from Virginia where they are cheap and selling them up in NY City where the taxes make them much more expensive.. Another example would be the Blue Jeans market in the Soviet Union in the 1970's. Buy them for $40 here and sell a pair of Levi's for several hundred dollars in Moscow..

Why do some countries have larger black markets, because some countries have more restrictive taxes and laws regarding commerce. thus providing an financial incentive to those who are willing to skirt the governments regulated market.. and it's this skirting the system ( skirting the governments regulated market ) which creates the Black or hidden from the government market.

Agreed. I forgot to mention that

Thanks