Underground Economy Accounts for 28% of GDP

      September 09, 2009 11:20

      Korea's underground economy took up 28 percent of its GDP in 2005, the fourth-largest share among OECD member states. Citing a report by Friedrich Schneider, a professor of economics at Johannes Kepler University in Linz, Austria, the National Assembly Budget Office wrote in a report submitted to the National Assembly that the shadow economy occupied 27.6 percent of GDP from 2004 to 2005.

      Schneider defined the underground economy as all economic activities not covered by official economic statistics. It includes not only illegal activities such as drug dealing, unauthorized shops, black market trading, and tax evasion, but also bartering and exchange of labor.

      Turkey had the largest underground economy share in the OECD with 33.2 percent of GDP, followed by Mexico with 31.7 percent and Portugal with 28.2 percent. The U.S. ranked at the other end of the spectrum with the smallest share of 7.9 percent. Switzerland had second lowest with 8.5 percent, followed by Japan (8.8 percent), Austria (9.3 percent), the U.K. (10.3 percent), and New Zealand (10.9 percent).

      Out of 145 countries in the world, Korea's underground economy share was the 100th largest. Bolivia had the largest with 67.2 percent of GDP, and Georgia was second with 66.4 percent. Zimbabwe and Panama were third and fourth with 64.6 percent and 62.2 percent. Some 16 countries had an informal economy taking up over 50 percent of GDP.

      The share of Korea's underground economy has remained steady, as it was 28.1 percent of GDP in 2001-2002, 28.8 percent in 2002-2003, and 28.2 percent in 2003-2004.

      "The underground economy promotes tax evasion and is therefore a deficit-causing factor," the National Assembly Budget Office wrote. "It also disrupts even and efficient distribution of resources in the formal economy. We should prevent the illegal transaction of funds by using financial information of taxpayers and increasing the efficacy of the system that requires the reporting of transactions of large sums of cash, which will hinder attempts at tax evasion, crime, and drug dealing."

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