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In 2017, the Office of the Revenue Commissioners seized 125,689 litres of illicit fuel destined for sale in the shadow (black) economy - Leaving Cert Economics - Question c - 2019
Question c
In 2017, the Office of the Revenue Commissioners seized 125,689 litres of illicit fuel destined for sale in the shadow (black) economy. (Source: The Office of the Re... show full transcript
Worked Solution & Example Answer:In 2017, the Office of the Revenue Commissioners seized 125,689 litres of illicit fuel destined for sale in the shadow (black) economy - Leaving Cert Economics - Question c - 2019
Step 1
Explain what is meant by the economic term shadow economy.
Answer
The shadow economy refers to all economic activity that goes unrecorded by national income accounts. This includes transactions that occur outside of the official economy and are not monitored or taxed by government authorities. Activities in the shadow economy may involve illegal businesses or services, undeclared income, and unregulated work conditions, leading to significant implications for fiscal policy and economic measurement.
Step 2
Outline the economic effects for Ireland of increased activity in the shadow economy.
Answer
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Loss of tax revenue to the government / pressure on government services: Tax revenues essential to the provision of state services are lost to the exchequer. This could have been used by the government for various uses. With the loss of revenue to the state, the government may have to cut spending, find additional sources of tax revenue and/or reduce the volume of services which it provides and/or increase borrowing.
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Decline in legitimate business activity / threat to jobs: Those businesses which are legitimate will suffer a decline in sales, leading to possible job losses and a decline in economic activity.
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Increased government expenditure on enforcement: To curb this activity the government may have to increase spending on enforcement which will lead to further pressure on the state’s finances / necessity to raise taxes.
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Increase crime levels: An increase in shadow / black economic activities results in increased crime and may instill fear in citizens and further reduce economic activities.
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Standards of products/services: Because of the lack of regulation, products may be unsafe or harmful to consumers.