Estimating the size of the shadow economy is difficult. After all, people engaged in underground activities do their best to avoid detection. But policymakers and government administrators need information about how many people are active in the shadow economy, how often underground activities occur, and the size of these activities, so that they can make appropriate decisions on resource allocation. (8)
In more than 50 countries around the world, the shadow economy is at least 40 percent the size of documented GDP.
In percentage terms, the biggest shadow economy relative to official economic activity is in the former Soviet republic of Georgia. In 2007, the last year for which data were available, revenue from all Georgia’s goods and services generated off the books amounted to 72.5 percent of official GDP. In other words, the government is losing out on billions of taxable dollars it could use to improve the national infrastructure, service debt, build schools and roads, even hire better tax collectors. At the other end of the scale, the U.S. shadow economy equaled only 9 percent of the country’s official economy. Given U.S. GDP of $14.26 trillion, the world’s largest, that could still be as much as $1.2 trillion in taxable income that slips through Uncle Sam’s fingers each year. (10)
At present, the underground economy is expanding more rapidly than the traditional U.S. Economy. In the United States, the IRS estimates that the underground economy may represent as much as 40% of the GDP. In some nations, like North Korea, the estimate is that 80% of the North Korean GDP goes unreported as a portion of their entier economy. The Kyrgyz Republic’s economic climate is largely a complete underground economy. (11)