ABSTRACT
This chapter begins with a discussion of the definition of the underground economy. Perhaps the single most commonly cited 'driving force' of the underground economy is the tax burden. The implementation of the Goods and Services Tax in 1991 has probably received the most 'credit' for increasing the size and growth of the Canadian underground economy in recent times. In fact, until the advent of the Canada Customs and Revenue Agency's 'Underground Economy Initiative' in November 1993, the Canadian government has dismissed the notion that the underground economy was of any significance, in contrast with the position of the Internal Revenue Service in the United States. The MIMIC model was first applied to the problem of measuring the underground economy by Bruno S. Frey and Weck-Hannemann. The degree of regulation is often cited as a factor that influences people to engage in underground activity as regulations reduce an individual's freedom of choice.
