The man who sells candy on the D train is part of it:
Maurizio Bovi takes an in-depth look at unofficial commerce:
Traditionally, the presence of tax evasion has been associated with tax rates. But recently some authors (Johnson et al 1997 and Friedman et al 2000) have suggested that the shadow economy, taxation, and the institutional setting should be considered all together because they may be related in a very peculiar way. By inserting the institutional framework into the traditional analysis, they emphasise that the integrity and efficiency of the public sector is connected with the shadow economy because a more honest and proficient bureaucracy increases the probability of catching tax dodgers.
Other things being equal, this lowers the optimal size of the shadow economy. Furthermore, bad governments offer few and low-quality public services, a fact that may make people less willing to pay for public services and/or may give rise to alternative, irregular service networks. Finally, intrusive regulations are costly and another extra-taxation factor potentially stimulating firms to choose the ‘quit option’ (ie the decision to go underground). In sum, the presence of inept bureaucracy may be strongly associated with the shadow economy.
