For obvious reasons, tax evasion and underground activities are
difficult to detect and measure. Individuals and firms who evade
taxes or operate irregularly tend to hide their income from the government,
and hence, are unlikely to release information on their
hidden activities. This makes it difficult to obtain direct data on
underground activities and is the reason why economists have tried
different indirect measurement methods, such as the currency
demand approach, the gap between effective and potential electricity
consumption, or the multiple indicators approach. These methods
are based on macroeconomic estimates of the size of the underground
economy, and have at least two limitations: (i) they are subject to
large measurement errors; and (ii) by construction, the resulting
indicators of underground activities are strongly correlated with
other macroeconomic variables