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The Politics of the Black Economy

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  • J. J. Thomas

    (Department of Economics The London School of Economics Houghton Street, Aldwych LONDON WC2A 2AE)

Abstract

On the basis of indirect estimates of the size of the black economy, it has been argued that failure to measure black economic activity in official government statistics has produced a misleading picture of the state of the economy, overestimating both the rate of inflation and the level of unemployment and underestimating the effects of tax rates on the level of tax evasion. These arguments, which suggest that large numbers of those recorded as being wholly unemployed are actually working in the black economy, have strong political implications for tax cuts and attitudes towards welfare and poverty. This paper provides a critique of the indirect measures of the size of the black economy and argues that none of them can be relied upon to produce accurate estimates. An examination of some of the microeconomic evidence collected by economists, sociologists and anthropologists suggests (i) that the more dramatic numbers produced by indirect measures may represent considerable overestimates of the actual size of the black economy in the United Kingdom and (ii) that there may be good reasons why it is easier for moonlighters rather than the unemployed to work in the black economy. If this is so, the policy arguments based on these indirect measures of the black economy do not rest on firm foundations and should therefore be regarded as political special pleading.

Suggested Citation

  • J. J. Thomas, 1988. "The Politics of the Black Economy," Work, Employment & Society, British Sociological Association, vol. 2(2), pages 169-190, June.
    • Handle: RePEc:sae:woemps:v:2:y:1988:i:2:p:169-190
    DOI: 10.1177/0950017088002002003
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    References listed on IDEAS

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    1. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
    2. Peter M. Gutmann, 1979. "Statistical Illusions, Mistaken Policies," Challenge, Taylor & Francis Journals, vol. 22(5), pages 14-17, November.
    3. Spicer, M W & Lundstedt, S B, 1976. "Understanding Tax Evasion," Public Finance = Finances publiques, , vol. 31(2), pages 295-305.
    4. J. J. Thomas, 1986. "The Underground Economy in the United States: A Comment on Tanzi," IMF Staff Papers, Palgrave Macmillan, vol. 33(4), pages 782-789, December.
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    Cited by:

    1. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    2. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers 2007-1, Central Bank of Cyprus.
    3. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers 2007, Central Bank of Cyprus.
    4. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    5. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.

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