The value of a shadow economy

The Economist magazine has a piece defending Greece's shadow economy, but I think that the piece misses the main point.  It isn't just that the shadow economy provides jobs and income.  The benefit is that it provides an area of commerce that is relatively unprotected from government regulation and taxes.  Indeed, that is the very reason that the shadow economy exists.

Friedrich Schneider, a professor at the Johannes Kepler University in Linz, Austria, has been assessing shadow economies for years. He reckons that much of Greece’s shadow economy, perhaps as much as half, actually complements activities in the official economy, adding to welfare and overall GDP. Stamping it out altogether might do more harm than good. 

House cleaners, casual labourers, moonlighting plumbers and street buskers may pay no tax or social insurance on the cash they are paid. But a lot of that cash ends up being spent in supermarkets, petrol stations, on utilities and mobile phone bills—on which value-added (VAT) and other taxes are charged. . . .