ABSTRACT
This chapter provides a comprehensive picture of the underground economy. It elucidates the concept of illicit economies and 'off the books' activities, also known as 'sovereign free' or 'active financing exception' activities. The chapter provides empirical estimates of the magnitude of the underground economy across countries, emphasizing the growing nature of this phenomenon in recent years. It lists the major factors that affect individuals' and firms' decision to go underground and explains why some markets are prone to develop shadow economies. The chapter outlines the major initiatives that have taken place to establish more effective governance in dealing with corrupt markets. The term 'underground economy' describes a wide spectrum of economic activities that are deliberately concealed from public authorities. In theory, total economic income is comprised of officially measured production of legal goods and services, usually referred to as the official gross domestic product (GDP), and economic activities that are left out of the official statistics.
