What is Parallel Economy definition/concept

The set of economic activities has two lines of action: conventional and parallel. The first refers to all activities in which companies and individuals comply with their legal obligations : tax declarations, payment of taxes and other legal requirements. Parallel Economy

The parallel economy refers, as its name indicates, that each company or economic initiative carries out an economic project outside the law and state control , especially in relation to paying taxes. It is of course called parallel because it is performed by a hidden channel in the global frame.

According to experts, although there are some measures to reduce this type of economy, it is very difficult to control. It should be noted, by the way, that some analysts believe that the shadow economy is caused by excessive state control of economic activity . Parallel Economy

In some cases, entrepreneurs could not access the conventional economy because it involved high costs that cannot be easily obtained. Traditionally, in sectors where it is more frequent, the informal economy is part of the area of ​​construction, small commerce and street sales.

Causes of the shadow economy

There are several causes of this phenomenon. On the one hand, low social awareness . On the other hand, an economic activity not associated with the payment of tax implies a greater economic benefit. In this sense, some countries have high rates of parallel economy due to their culture as a people and as happens in countries like Spain, Italy, Greece and most Latin American countries.

The first and main consequence is tax fraud

This circumstance, in turn, has a series of implications: a decrease in state revenues, greater insecurity at work, increased corruption, etc. At the same time, fraud linked to the black economy means that companies that comply with the law and pay taxes are disadvantaged, as the prices of their products are comparatively higher than those of their competitors in the black economy. Parallel Economy

Measures to combat the shadow economy

Governments can take a number of measures to reduce their effects on a country’s economy. Thus, on certain occasions, a tax amnesty is carried out with its fraudsters, which consists in pardoning everything that was not declared in exchange for the payment of a lower amount. On the other hand, it is also possible to intensify fiscal inspections in order to identify illegal economic activities.

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