What Are The Disadvantages Of Underground Economy

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The world economy has astonishingly advanced during the last century with underground economy. But why underground economy emerged and is still existing still in the 21st century? It was started as a simple way of selling drugs, prostitution and human trafficking and such illegal activities that is able to avoid tax. However, combining with financial sector has made the situation has become much more complicated and inextricable connection with society at large.

Modern society’s underground economy is based on the offshore market made by financial world trying to cut taxes and increase their revenue. First, they created so-called ‘new-colonies’- around 60 countries where it is possible to avoid or loosen the influence of tax law and regulations.
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However, I would like to focus on its negative aspects as I strongly believe they overwhelm the positive side. First, shadow economy is aiming for lowering or wiping their revenue out where tax should be paid. It could cause the overall rise of tax or lower quality public services which in result burdens the weaker. Second, the presence of unfair market in the economy could yield a disparity of economy where cannot be controlled by government. This situation widens the gap between the rich and the poor. Not only that, the people who employed in the underground area do not have a proper right could arise protest. aggravating the discrimination trade and the distribution of wealth among and countries could be another aspect. Thirdly, the shadow economy influences economics laws, regulations and policies by not being mornitored properly and manipulated that could make incorrect information and contribute havoc when they establish the law. As a result of this, the government loses the trust of the public and leads to move and flourish of underground economy. There are two similar examples of influence of underground…show more content…
It looks like a simple bankruptcy but it was spread into the world crisis. It was initiated by lending money to the public with the low interests on the premises of being secured by their property, typically a house. The financial sector made a vicious circle to distribute and increase their profit and risk as the another way of fund that could avoid tax law and regulations to create a huge interest. Raising interest rates put the people in a situation where they no longer afford to pay their debt and decrase the house investment as well as its price. Therefore, the banks faced to chain collapse and it was connected with major firms from America to the World where bought fund of underground economy. In 2008, financial crisis was not surprising result. It underlines that shadow economy could lead to catastrophic consequences of an economic depression throughout the world and have a negative effect in the long term as it is disturbing the stable and concrete foundation of the country’s economy.

Despite poisonous factors, some are vehemently in favour of the existence of shadow economy. The most noticeable point is that the money returns from underground economy to legal markets. In other words, shadow economy could contribute. It could facilitate the influx of capital as much as they intend through shadow economic - according to this it promotes the activation of economy as well as being used

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