Size, Causes and Consequences of the Underground Economy

Chapter 14Tax Compliance Strategies to Tackle the Underground Economy*

Simon James

Introduction

When ‘Public Enemy No. 1’ Al Capone was convicted for income tax evasion he apparently exclaimed ‘This is preposterous. You can’t tax illegal money!’ He was sentenced to eleven years in prison. In many countries revenue authorities continue to respond not only to tax evasion as conventionally understood but also to financial crimes associated with organised crime, money laundering, public corruption, smuggling and other aspects of the ‘underground economy’. Much of this work, of course, is less dramatic than the jailing of famous gangsters but no less important for that.

Although by its very nature it is impossible to measure the level of tax evasion ...