The Shadom economy

Résumé du document

Even if the shadow economy is often forgotten in our societies, this informal business is nevertheless really present in our developed societies. Called shadow economy, black economy or underground economy, this unofficial business is living from as long as business has existed. According to the French economist Sédillot (2000) in his book 'histoire des marches noirs', the shadow economy was acting in china ten thousand years before Jesus Christ, in order to avoid the pressures made by the state. Nowadays Governments are dealing with this problem with a very high importance, considering that it could be in the future a cause of failure of lot of today's policies. Consequently, we can wonder to what extent our west European countries are suffering from the underground economy and how a government has to deal with this phenomenon? The main objectives of this paper is understanding through the available literature what is really shadow economy, why does it affect our societies and mostly and what are the consequences of such problem? In order to answer these questions, we will define first the underground economy before studying its impacts, and we will in the final part, emphasize on different ways to fight against this informal economy.

Extraits

[...] In an other way, Hirschman (1958) thinks also that an increasing shadow economy can sometimes be for a country. Indeed, such a situation can constitute a kind of alert from citizens and consequently allow the state understanding that it might have been so far in its measures. Schneider takes the example of the huge growth of tobacco prices in Canada at the end of the 90's. Indeed, some statistics proved that more than 60% of Canadian smokers were buying their cigarettes using contraband. [...]

[...] Indeed, even if Stephan Smith or Cowell for example define rather well the shadow economy, it does not exist an official definition, and each author is consequently dealing with shadow economy with its own meaning. I think this can lead first to misunderstanding, like the study made by Smith and Karleoff in Canada, and can have huge consequences on the measure that a government will take against this movement. In an other way, some economists link the development of the shadow economy with a non-relevant policy from the state (Knox, Thomas J.). [...]

[...] Philip Harding and Richard Jenkins (1989) give an other classification of the shadow economy. Indeed, they distinguish for a part all the activities which belong to a economy, like house working, voluntary work but also moonlighting and second job holders. For an other part, they classify “illegal activities” like Drugs trafficking and all the other illegal businesses, which they called as the “Black Economy”. In spite of these pretty clear definitions of the shadow economy; it is really hard to precisely measure this phenomenon in its entire definition, and results can vary a lot between different surveys. [...]

[...] If for Thomas J. (1990) high taxations from the state are relevant explanations, the regulation made by the states is more able to explain the development of an important part of the shadow economy. Indeed, for example laws regarding immigration are according to him able to explain for a part the development of that phenomenon in the European Union. Other laws like concerning the working time reduction or the minimum wage available could have played a role in this development. [...]

[...] In his book, “Cash in hand work: the underground sector and the hidden economy of favours”, Collin C. Williams lands others underground businesses like prostitution, which constitute an other part of the underground economy. He argues that for him, this is important to understand the different gaps in the shadow economy, and even if all part of this sector are considered as illegal, it is essential to make the difference between people who just tried to avoid so high taxes and people who do not care about all the social, economical and ethical laws by dealing with drugs or humans trafficking for example. [...]