Shadow economy is booming, so we’ll tax it!
Israel has one of the largest shadow economies relative to its GDP in the developed world, according to the Taub Center for Social Policy Research in Israel, based on a report by the World Bank. A black economy, or shadow economy, is economic activity carried out beyond the reach of the regulator and without paying taxes.
The social protests, which are demanding a change in the country’s socioeconomic priorities, have barely touched this matter – even though a massive amount of money is changing hands under the table. If this activity were taxed, it could well provide financing for some of the social plans the middle class is demanding.
Shadow economies are more common in less developed countries. Off-the-books activity is most common in industries that necessitate a significant amount of labor but little skills, such as renovations, private lessons, cleaning and babysitting. It’s also common in lines of work that wouldn’t be legal in any case, such as the sex industry, illegal labor migrants, gray-market loans, gambling, smuggling and sales in stolen goods. It is generally carried out by individuals or small groups, not large businesses.
Dan Ben-David, head of the Taub Center, found that the country’s shadow economy has expanded over the past few years due to tax increases on consumption and tax breaks on income.