The Shadow Economy - A Critical Analysis

Seminar paper from the year 2008 in the subject Business economics - General, grade: 1,3, University of Applied Sciences Essen, language: English, abstract: According to the "Focus" magazine approximately 13 million Germans contributed tothe shadow economy in 2006! The estimations of Friedrich Schneider, onedistinguished expert in this area, showed that the extent of the shadow economy inGermany in 2007 was about 349 billion Euros, which equals to 14.7 percent ofGermany's gross domestic product (GDP)!The scope of the present assignment is to provide an all-embracing and criticaloverview of the shadow economy, to introduce the main causes, effects and dimensionsof the shadow economy and to find answer the question how shadow activities can belimited.In this context the hidden sector can be defined as all economic activities that are notrecorded in the national accounts, but normally should be a part of them and be includedin GDP. These actions can be on the one hand absolutely legal in the self-sufficienteconomy like do-it-your-self, neighbourhood help, but on the other hand completelyillegal activities like dealing with drugs and smuggling as well as legal activities, whichare illegally being carried out, e.g. tax evasion or illicit work.The main and most vital reasons for the existence and constant growth of the shadoweconomy are high taxes or social security contributions burden and the intensity of stateregulations. But also sociological-psychological causes li...