The Countries with the Biggest 'Shadow Economies': Global Tax Evasion - BusinessWeek

The Countries with the Biggest 'Shadow Economies': Global Tax Evasion - BusinessWeek

by Chris Prentice
Global Tax Evasion

Despite what many might argue, paying taxes is one of the cornerstones of a healthy economy. More and more citizens around the world are avoiding taxes by operating businesses off the data grid. The boom in "shadow economies" leaves governments insufficient revenue to provide adequate public services, whether that means health care, roads, education, or even better tax collection. In fact, a new report estimates that in 2007, in 162 countries, an average of 35.5 percent of official gross domestic product slipped through the cracks—not counting any fruits from such illegal activities as drug dealing or organized crime. Friedrich Schneider, an economics professor at Austria's Johannes Kepler University of Linz and a co-author of the report, "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," emphasizes that the study's numbers refer only to the amount unpaid by individuals and businesses avoiding taxes or legal labor requirements. The problem is on the rise both in developed and developing nations. The worst offender is the former Soviet republic of Georgia, where an estimated 72.5 percent of GDP was untaxed in 2007. The U.S., while not immune to shadow economic problems, is the world's least-affected country, with a mere 9.0 percent of legally derived GDP escaping the IRS that year.

Click here to see the countries with the biggest shadow economies.