Shadow Economy
Definition
The shadow economy refers to economic activities that occur outside the official system, often involving unreported income and transactions. It includes both legal activities (e.g., babysitting for cash) and illegal ones (e.g., drug trafficking).
Analogy
Think of the shadow economy as an underground tunnel system beneath a city. It operates parallel to the official roads above ground, with its own rules and transactions happening out of sight.
Related terms
Informal Sector: Similar to the shadow economy, it consists of economic activities that are not regulated by formal institutions but may still be legal.
Tax Evasion: The illegal act of intentionally avoiding paying taxes owed to the government.
Underground Economy: Another term used interchangeably with shadow economy, referring to economic activities that go unreported for various reasons.
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