what is underground economy

Yes, an underground economy definitely exists. It refers to economic activities and transactions that are not reported to the government and therefore escape taxation, regulation, and official statistics. This underground economy includes both illegal activities such as drug trafficking, illegal gambling, and smuggling, as well as legal activities that are hidden to avoid taxes or regulations, like unreported income from self-employment or cash labor paid under the table. The underground economy may also be called the shadow economy or black market. Its size varies by country—for example, it is estimated to be 7-8% of the economy in the US and UK but can be much higher in other countries. Measuring it is difficult due to its secretive nature, but economists use indicators like discrepancies between income and expenditure, unofficial employment figures, and currency demand to estimate its scope. The underground economy expands when taxation and regulation are heavy and can grow during economic downturns as people seek alternative income sources outside the formal sector. Overall, the underground economy plays a significant role worldwide, encompassing millions of unregulated transactions daily that affect economies and governments.