A shadow economy operates outside of established trade and accounting principles, with goods and services that can be legal or illegal, but the financial aspect is almost always illegal. It violates trade laws by avoiding taxes and can include illegal activities. It thrives during rationing, and modern examples revolve around heavily regulated or illegal activities and goods, such as copyright infringement, censorship, and the arms trade.
A shadow economy, also known as a shadow economy, refers to an economic segment that does not follow established trade and accounting principles in its region. The goods and services offered in the shadow economy can be legal or illegal, but the financial aspect of a shadow economy is almost always illegal. Because most black economies are money-based and unreported to financial agencies, they are untraceable. Because of this, no one can say for sure how big a shadow economy really is, even though many economists try to make hypotheses based on the data.
The reason a black economy violates trade laws is that money is usually paid in cash, or “under the table,” so it is not subject to state or national taxes. Those who receive money from a black business will usually avoid placing it in bank accounts or reporting it as income, so as to remain untraceable. The anonymity of a black industry also allows for the inclusion of illegal activities, such as arms dealing, prostitution, and drug trafficking, since those involved in these industries naturally want to remain under the control of government enterprises.
Not all goods and services offered by a shadow economy are illegal per se. Any job, even one done by a licensed professional, turns into a black market transaction if the money is paid through unreported channels. Construction work, catering, landscaping and almost any other type of service or commodity exchange can become part of the black trade if the money is not properly reported to tax authorities or does not adhere to commercial law. Thus, a job, such as building a house, may be totally legal and codify, but the financial aspect may be illegal.
Black economies tend to thrive during times of rationing, such as during wartime. In World War II, a shortage of everything from coal to sugar created a thriving black market across Europe. For cash or exchange, extra rations of all kinds were available to those who knew where to look. War profiteering, or the sale of stolen military goods through black businesses, became a huge problem during the long and difficult campaign. Similarly, under Prohibition in the United States, all alcohol trading was the result of black market finance, as reporting income or expenditure on alcohol was to alert authorities to the presence of an illegal supplier.
Modern examples of black economies mostly revolve around heavily regulated or illegal activities and goods. Copyright infringement or piracy is a common form of black business, allowing unauthorized copies of copyrighted movies, music, and other material to be sold for cash over the Internet or through night-flying vendors. Countries with strict censorship laws are very likely to create an expansive black economy that trades prohibited goods at exorbitant prices.
The arms trade is a frequent and scary nest of the black economy. The movement of guns is usually heavily regulated by government law, meaning deals to obtain illegal or restricted weapons must be handled by the least traceable methods possible. This industry is considered extremely dangerous and has been associated with the proliferation of weapons among gangs around the world.
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