Size, Causes and Consequences of the Underground Economy

Chapter 12Tackling the Underground Economy in the UK: A Government’s Response*

Christopher Bajada

Introduction

When an individual participates in the underground economy and does not pay their fair share of tax, the rest of the community must bear the burden of higher taxes that are needed to fund ongoing government expenditure on public works and services. When there are only a small number of participants engaged in such clandestine activities, the burden of tax collections may be spread thinly on the compliant community. If on the other hand, the number of participants are large and the extent of evasion is significant, the compliant community suffers by having to shoulder a greater burden for funding public goods and services, from which ...