Underground economy, disturbatory factor in national economy development.

Dumitrescu, Constantin Dan ; Neacsu, Razvan ; Zamfirescu, Nicolae 等

1. INTRODUCTION

From the perspective of apparition, development, and economy function as a market economy, the concept of parallel market, underground economy, black market is relatively young. Practically, the frequent use and invocation of it, as distinct study and analysis object, is dating only just of about a quarter of century. This represents one of the motives for which its theoretical delimitation is not yet outlined with sufficiently precision so far; the scientific accuracy of the term, still insufficient, is doubled by some confusions, generated by the existence and concomitant circulation of several terms (Dinu, 2003).

2. THE CONCEPT OF UNDERGROUND ECONOMY

Some of the most used definitions present underground economy as an economic activity which is not registered in official evidences or any economic unregistered activity that currently contributes to the obtaining (calculation) of GDP (Gross Domestic Product).

A Romanian economic dictionary that came out in 1995, defines it as "the totality of economic activities undeclared to the institutions charged with the taxes and social subscriptions establishment which are ridding off the statistic registrations and from national accounting" .

According to this source, underground economy--known as hidden or informal economy--contains "black" labor, illegal or illicit production activities, projecting, unofficial and undeclared, (Ciutacu, 2001).

According to the Romanian Information Service, "the main channels" of underground economy supply placed in the domains of tax and custom evasion (decrease of value or of quantity declared at the customs) are counterfeit goods, illicit manual labor in companies (intended defective management of book-keeping, unfolding of fictive operations), disloyal competition and funds misapplication.

While in some papers, the underground economy is associated with legal economic activities which are not reported to the IRS and are evading taxes, numerous studies on this theme also take into consideration illegal activities: stolen goods trade, drugs production and traffic, illegal gambling, robberies, frauds, swaps with drugs or stolen goods, guns traffic, alcohol and cigarettes contraband.

Therefore, a precise definition of underground economy is difficult if not impossible to give, because of the phenomenon complexity and the fact that this is easily adapting to the changes from the economic, tax, juridical and moral systems, (Dinga, 2001).

Underground economy is an expression that contains several terms exchangeable used or which, from a certain reason, are overlapping. The situation is even more confusing when terms are translated from a language into another one, and when the tones or meanings are lost. From used terms we can mention: informal sector, unstructured sector, shadow economy, hidden economy (invisible, occult, submerging, illegal, parallel, secondary, informal, undeclared, unaccounted, social), district/ region economy, ghetto economy, counter-economy, guerilla capitalism, "black" labor, shadow commerce, tax evasion, dirty money laundering, breach of "white collars", tips, bribery, contrabands, a.o..

There are yet some specific features:

1) Owing the tax motives is undeclared and difficult to quantify.

2) It is giving birth to the superior gains to the legal ones because of the leaking from the taxation, in counter batch with existent risk.

3) One can observe a real decrease of competition and an increase of prices, because of the high price and the struggle between the participants.

4) Otherwise we can observe a decrease of products prices because of lack of calculation items exposed to the tax evasion; five. The transactions are made with cash to get rid of control.

The causes of occurrence, maintaining and development of underground economy must be thought in three directions: institutional, conjuncture and psycho- sociological causes (Lawrence, 1998).

This category include the weaknesses of the fiscal administration (the government's incapacity to control and collect the budgetary debts of companies), weaknesses of the fiscal punishment and the phenomenological obstruction: some special processes or phenomena that disturb the institutional or behavioural transparency during a certain period of time or in a certain economic area (e.g. the mass privatization)

Out of this rather typological presentation, one can recognize a series of similarities, even identities, with situations from Romanian transitional economy (Dinga, 2001). The underground economy is an answer of the economic system to the act of governmental management. The main functions of the underground economy are the following:

1) To mark the allocation of resources

2) To mark the economic behaviour dilemma: it refers to the contrary effects of the underground economy over some standard economic behaviour

3) To absorb economic shocks: underground economy often plays the role of absorber of certain economic shocks appeared either on the goods and services market, on the labour market, or on the financial-monetary market

4) To absorb institutional shocks

5) To fill the economic "gaps": underground economy, forced to persist in the opaque area.

3. TAXONOMY OF UNDERGROUND ACTIVITIES

The taxonomy in this work is trying, without being exhaustive, to "cover" three criteria: legality, fiscal or taxation system, and national accounting.

The activities are split in two categories:

1) Commercial and

2) noncommercial activities.

A first classification of underground activities, a split up, from the point of view of legality, in:

* illegal and

* legal.

Part of this last category are the activities which are not booked on state level in national accounting system) and which are not declared at the financial administration

The ratio of the component elements, their manifestation and impact on official economy vary from one country to another, depending on the economical and organizational system, social and historical features.

According to an internationally spread definition adopted by European Union countries, the activities included in the underground economy sphere can classify as follows:

1) Legal undeclared productive activities (marked out in Eurostat as "black economy", including activities which are not registered on state level in the national accounting system (domestic activities, voluntary labor, community activities) and which are not declared to the financial authorities (fraud and tax evasion, black labor, tips), and

2) Illegal manufacturing of goods and services (drugs production and trading, weapon traffic) which are, of course, undeclared.

Pierre Rosanvallon suggests another typology regarding underground economy activities: self-governing economy; and hidden economy.

Self-governing economy includes:

1) Noncommercial activities, such as the domestic labor (self-consumption, raising the children, housekeeping, odd jobs, gardening), mutual assistance between neighbors, friends, voluntary labor, and help provided to individuals or to the community.

According to Pierre Rosanvallon's explanation, the hidden economy refers to commercial aspect of the underground economy activities (which are "goods", thus they have a price):

1) Undeclared legal activities: the production of illicit enterprises, decreased reports of production of the official enterprises, undeclared or under declared salaries;

2) Delinquent activities: prostitution, gambling, swindles, corruption, bribery, insurance frauds, drugs traffic, usury, money falsification;

3) Illegal activities: black labor, fiscal fraud, work force traffic, immigration.

The National System of Accounts 1993 (NSA) and the European System of Accounts 1995 (ESA) use the following concepts referring to the "invisible" economy: illegal production, underground economy, informal sector.

"Illegal production" is defined by NSA and ESA as including: the production of goods and services whose trade, distribution and possession is forbidden by law and the legal production that becomes illegal when it is carried on by unauthorized producers (Paraianu, 2003).

The following activities are included in the category of "illegal production": drugs production and traffic, prostitution, pornography, unlicensed gambling, production and trading of film copies, recordings, books and computer software without copying right, unlicensed activities, bribery and blackmail, smuggling, robbery.

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According to NSA and ESA, "the underground economy" derives from deliberately hidden activities by the public authorities for reasons as: the elusion of the payments owed to income tax, value added tax and other taxes, the elusion of the payments owed to social insurance contribution, respecting the legal standards/regulations and avoiding to comply to some administrative procedures.

In NSA and ESA the "informal sector" consists of units that belong to the housekeeping sector. It includes activities performed, generally, by the members of the same family, handicraftsmen, artisans.

4. CONCLUSIONS

1. Taxonomy of underground activities typology may be:

1.1 Adopted by EU countries

* Undeclared licit activities (or "black economy" according to Eurostat, fraud and tax evasion) unregistered in SCN (domestic activities, voluntary work).

* Illicit productive activities of goods and services (production and drugs commerce, illegal traffic of guns)

* 1.2 Selected from specialty literature

* Undeclared legal activities: clandestine enterprise production, reduced reports of official enterprises production, paid salaries but undeclared or partially declared.

* Fraudulent activities: fiscal fraud, black labor, traffic of labor force, etc..

* Punishable activities are: gambling, prostitution, corruption, bribery, narcotic traffic and others.

5. REFERENCES

Ciutacu, C. (2001). Reforma si metareforma (Reform and met reform), Expert Printing House, Bucharest

Dinga, E. (2001). Economia subterana adversar? partener? ..., (Underground economy adversary? ... ? Partner?), Economic Tribune Publishing, no. 21-22/2001, Bucharest

Dinu N. (2003). Economia subterana in Romania (Underground economy in Romania), Economic Printing House, Bucharest

Lawrence, A. (1998). The Underground Economy. A Strategic Scan of the Justice Enviroment, Department of Justice, Canada

Paraianu, M. (2003). Piata paralela a muncii (Parallel work market), Expert Publishing House, Bucharest