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Just how much is the underground economy worth? And if “underground” items are by definition undeclared, whether sales of smuggled cigarettes or payment for casual work, how can governments hope to measure it? This is important, because policymakers rely on national accounts and GDP figures to take decisions, and if the figures are inaccurate the policy responses are likely to be off-centre too.
But there are in fact tried and tested ways to limit the unknown. One is to compare figures for the same activity from the supply and demand side. Take the construction industry, often cited as a hive of undeclared activity.Comparing households’ declaration of the time and money spent on household repairs and improvements with activity declared by workers in this field helped Canadian experts arrive at an idea of how much activity was being hidden. Comparing how many cigarettes are officially sold with the number people saying they smoke can provide some idea of contraband tobacco activity.Methods vary from country to country, as systems and likely areas of underground activity differ, but such tactics can help put a value on activities that will not otherwise find their way into the account books, or at least set upper and lower limits for likely discrepancies, says Measuring the Non-Observed Economy: A Handbook.
© OECD Observer No. 234, October 2002