Extra! Korea

September 10, 2009

Underground economy accounted for 28% of GDP in 2005

Filed under: economics — extrakorea @ 1:03 am

According to a report, in 2005, Korea’s underground economy accounted for 27.6% of its GDP, the fourth-highest percentage in the OECD. So what is an underground economy?

[Friedrich] Schneider [a professor of economics at Johannes Kepler University in Linz, Austria] defined the underground economy as all economic activities not covered by official economic statistics. It includes not only illegal activities such as drug dealing, unauthorized shops, black market trading, and tax evasion, but also bartering and exchange of labor.

And why is this bad?

“The underground economy promotes tax evasion and is therefore a deficit-causing factor,” the National Assembly Budget Office wrote. “It also disrupts even and efficient distribution of resources in the formal economy. We should prevent the illegal transaction of funds by using financial information of taxpayers and increasing the efficacy of the system that requires the reporting of transactions of large sums of cash, which will hinder attempts at tax evasion, crime, and drug dealing.”

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2 Comments »

  1. Underground economy or not, the government eventually gets everything.

    Your employer pays taxes, so do you, so does the owner of the shop where you spend what’s left of your earnings, so does the owner of the store where he or she goes shopping, and so on and so forth.

    Comment by Teadrinker — September 12, 2009 @ 5:57 am

  2. Korea actually has pretty low taxes for an OECD country, I think.

    Anyway, this underground economy’s unreported size may be why South Korea’s economic engine and its residents’ buying power seem to be stronger than its per-capita GDP would suggest:

    Comment by kushibo — September 16, 2009 @ 7:29 am


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