ABSTRACT

In this chapter we extend on the results of Chapter Five and provide the first decomposition of the cash economy into the contributions by households and businesses. The results will have an important implication for any government policy designed to target the cash economy. For example, if the household sector is found to be the largest contributor to the size of the cash economy, Australia’s recent tax reforms are unlikely to have a significant effect on subterranean participation, as the new tax system isn’t designed to deal with the household sector. In this instance separate policies may be required to stem growth in this sector. However if business participation dominates, these results may be used to assess the effectiveness of the new tax system on reducing business activity in the cash economy. Either way these results will be of assistance to those who are commissioned to deal with the underground economy.