NCPA - National Center for Policy Analysis

The Unmeasured Underground Economy

December 21, 1998

While America's official gross domestic product will probably amount to around $8 trillion this year, one can only guess at its true size because the off-the-books portion is not included.

  • The underground economy is composed of illegal activities, informal and unrecorded transactions, and income that is not reported.
  • Some economists estimate that as many as 25 million Americans earn a large part of their income from underground activities.
  • While economists have long estimated that the U.S. underground economy equals about 10 percent of GDP, there are reasons to believe the size may be larger.
  • In Europe, it accounts for 20 percent to 30 percent of Italy's, Spain's and Belgium's GDP -- and for 10 percent to 20 percent of the economies of Sweden, Ireland, France, the Netherlands, Germany and the United Kingdom.

One clue to the size of underground economic activity in the U.S. is the popularity of $100 bills. Bruce Bartlett of the National Center for Policy Analysis points out that one seldom sees consumers present $100 bills at grocery checkout counters, but as of last year $100 bills represented 60 percent of the value of all U.S. currency in circulation.

Analysts think the large bills are often reserved for underground economic transactions.

Source: Perspective, "Going Underground," Investor's Business Daily, December 21, 1998.


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