The impact of the informal economy on GDP growth in Latin America and the Caribbean

The informal, underground or shadow economy is a significant, growing force throughout Latin America and the Caribbean, contributing to overall output, yet diminishing productivity, congesting public services, and depriving developing nations of potential fiscal revenues. This paper discusses the various definitions and methods of measurement of the informal sector, with the aim of showing the importance of collecting taxes in informai economies. Informai economy participants engage in tax evasion and avoidance of governmental regulations, therefore the implications of excessive tax burdens and onerous bureaucracy are studied, with a focus on their impact on GDP growth. Informai sector enterprises can greatly contribute to the official, recorded GDP measures if they have significant incentives to joining the formal sector. These incentives are presented and must be considered seriously by policymakers concerned with capturing additional tax revenues and improving economic growth in their nations