In the clamour around the demonetisation of high-value Indian currency notes in 2016, a few questions were never asked: What is the black economy? Does it only include the illegal sector, i.e. drug trafficking and the like? How do we take into account illegal earnings from the legal sector, i.e. unreported or tax-evaded income? How do these illegal earnings contribute to consumption, and therefore money circulation? Do black profits slow down money circulation, or accelerate it?
Macroeconomics of the Black Economy answers these questions and explains how we can factor in the entire gamut of illegalities when we study the economy as a whole. It looks at the concepts and measures of the black economy, its sources and mechanisms, and its implications for development policy. Moving away from previous studies that examine corruption and tax evasion only from a microeconomic perspective, this book analyses the implications of these measures for the macro-economy as a whole.
The book begins with a detailed study of early attempts at modelling the black economy. The author then incorporates black incomes into this model of estimation and studies its impact on the government expenditure multiplier. Following this, he studies the implications of the black economy on external balance, by reformulating the balance of payment to study illegalities in exports and imports, and illegal flight of capital through hawala and other channels in an open economy. The book ends with a detailed study of the Indian macro-economy in the light of these insights.
This work applies not only to India but also to every developing economy around the world, and will interest students of economics and development studies.
Saumen Chattopadhyay is Professor, Zakir Husain Centre for Educational Studies, School of Social Sciences, Jawaharlal Nehru University, New Delhi.
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List of Abbreviations