Economic activity in the shadows - why it happens and how it might be prevented

Supporters of free markets should, though, be worried about the shadow economy. Such activity can be marred by gang violence and coercion with little legal redress for victims. Also, operating in the shadow economy can be a serious impediment to the expansion of businesses: obtaining insurance, formalising employment relationships and advertising can all be difficult when a business is operating extra-legally. Thirdly, the shadow economy leads to those in the regular economy paying still higher taxes.

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Source: http://www.iea.org.uk/blog/economic-activity-in-the-shadows-why-it-happens-and-how-it-might-be-prevented

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