Underground economy - Definition and Overview

The underground economy consists of all trade that occurs without government permission or effectual intervention (in the form of taxation or price regulation). This market includes not only trade in legally-prohibited goods and services (such as drugs and prostitution), but trade in legal goods and services when income is not reported and consequently taxation is avoided. The term underground economy typically is not used to refer to trade in stolen goods or other coercive activities, which may more appropriately fall under the definition of the "black market." Underground economy transactions are typically cash transactions to avoid traceability by governments.

Estimates of the size of the United States portion alone of the underground economy range from $500 billion to $1 trillion.

The underground economy, when trading decisions are not the result of coercion, is arguably a free market, since, by definition, it lacks government intervention.

Example Usage of Underground