Regulation and the Shadow Economy

from the book Regulation and Economic Opportunity: Blueprints for Reform

Executive Summary

Individuals often respond to regulation by hiding economic activity to avoid abiding by the rules or paying taxes, known as “shadow economies”. Because shadow economies operate out of the reach of governments they reduce public revenues. Economist Travis Wiseman investigates the relationship between regulation and growing shadow economies. He suggests that policymakers can structure their rules and regulations to promote compliance. Wiseman suggests that:

  • Policymakers should structure the rules entrepreneurs play by to encourage compliance.
  • Lowering the regulatory burden and the tax burden are effective ways to encourage people to participate in the legal economy rather than in shadow markets.
  • Prohibitions can be replaced with formal markets to increase tax revenues and reduce illicit activities.
CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.