ABSTRACT
Underground economic activity exists to varying degrees in all economies. In most developed established market economies, the underground economy is largely a sideshow, although it can have annoying consequences. Tax revenues are reduced by tax evasion, distortions in economic information systems may at times mislead economic policy makers, and the society must deal with the consequences of socially offensive illegal behavior. Economic policy must be based on economic analysis, but it can not ignore the ethical and political attitudes prevailing in each particular society. Corruption and bribery of public officials is a particularly important issue in many transition countries. Criticism of the government's role in economic activity has lent force to the suggestion that in a free society the government's role should be limited. Research on the unofficial economy of Croatia reveals a number of possible causes. Lack of transparency, privileged sales and corruption helped the underground economy to grow.
