Comparative Analysis of the Relationship Between Poverty and Underground economy in the Highly developed, Transition and Developing Countries

摘要

AbstractThis study was undertaken with the goal of analyzing the relationship between poverty rates andsize of underground economy in the developed and developing countries and exploring whetherthere is a link between them. There are technical problems in linking them in that gettinginformation from those who have undertaken underground activities are difficult. Secondary datawere used to established hypothetical relationship and primary data for the empirical analysis.The results of the descriptive analysis revealed that underground economy and poverty have nogeographical boundary. Although the incidence, and the size differs from one country to another.The incidences of poverty and shadow economy are larger in the poor (developing andtransition) countries when compared with the highly developed countries. There is also a causallink between poverty and underground economy especially in the developing and transitioncountries with common factors such as high unemployment and corruption rates affecting bothpoverty and underground economy. High social security system and tax burden were found toaccount for the high rates of underground economies in the highly developed countries even withpeople’s awareness of its implications when caught. In developing countries like Nigeria, mostpeople embark on unlicensed (and hence illegal) micro-enterprises / activities like productionand sale of pure water, yoghurts, cutting down of economic trees, illegal running of privateschools, drug trafficking, prostitution, black-market currency exchange, fake disclosure of actualbusiness profit, in order to increase their levels of income by tax evasion or avoidance in thename of surviving. Government can reduce this menace to certain extent by engaging itself insustainable poverty reduction activities, tax policy changes, embarking anti-corruption campaignand increase in job opportunities within the formal economy.Key words: Poverty, underground economy, developed, transition and developing countries