A new approach is needed to tackle the underground economy



    MONTREAL, Oct. 30 /CNW Telbec/ - Canada's underground economy represents
about 5% of the country's gross domestic product, amounting to $75 billion.
    The underground economy includes goods and services that are produced,
exchanged or consumed in violation of the law. These activities are illegal
either because the law prohibits production or consumption of the goods or
services concerned, as in the case of narcotics (referred to as black markets)
or because legal goods or services are exchanged under illegal conditions, for
example, renovation work performed by unlicensed workers, or contraband
cigarettes (designated as the parallel economy).
    Among current public policy issues involving the underground economy,
examples include:

    
    - Widespread tax evasion (nearly 15%) in home construction and
      renovation.
    - Increasingly high taxes on cigarettes, leading to growth in contraband,
      just as in the early 1990s when governments had to cut taxes by 80% to
      eliminate the problem.
    - A federal anti-narcotics strategy resembling the war on drugs in the
      United States, which swallows phenomenal resources with little apparent
      effect on drug consumption.
    

    To deal with problems linked to the underground economy, four options can
be considered: imposing tougher sanctions, seeking an optimal size for the
underground economy, doing nothing, or modifying public policies that form the
basis of the underground economy.
    "Many current examples suggest that the measures taken to fight the
underground economy are ineffective and sometimes even counterproductive,"
says Marcel Boyer, vice-president and chief economist of the Montreal Economic
Institute. "There is good reason to revise our approach to the underground
economy in light of history, economic theory and practical experience."
    The research paper titled The Underground Economy: Causes, Extent,
Approaches is available at www.iedm.org. It was prepared by Pierre Lemieux,
associate professor in the department of management sciences at the Université
du Québec en Outaouais.

    The Montreal Economic Institute is an independent, non-partisan,
non-profit body that takes part in public policy debate in Quebec and across
Canada, offering wealth creation solutions on matters of taxation, regulation,
and reform of health and education systems. Its publications since 2000 have
included the Report Card on Quebec's Secondary Schools. In 2004 it won a
Templeton Freedom Award for Institute Excellence for the quality of its
management and public relations.




For further information:

For further information: and interview requests: André Valiquette,
Director of Communications, Montreal Economic Institute, (514) 273-0969 ext.
2225, Cell: (514) 574-0969, avaliquette@iedm.org


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