Participation in the Black Economy: Theory

Abstract

Chapters 2–4 considered in detail the question ‘How large is the black economy?’ As we saw that is not an easy question to answer. Indeed, some people might argue quite legitimately that it is impossible to answer that question. This has not deterred some economists from trying to do so and they have developed a whole range of techniques aimed at revealing the extent of such concealed economic activity. These techniques, and some of the studies using them, were extensively reviewed in Chapters 2, 3 and 4. It is clear from that review that there are significant weaknesses with all the methods that have so far been devised. However, despite their imperfections these studies do constitute possibly the best evidence of the existence and growth of irregular economic activity. As Cowell (1985b) has claimed, ‘there is sufficient evidence to suggest that tax evasion is quantitatively a non-neglible problem in advanced Western-style economies’ (p. 163).