The shadow economy, sometimes called the informal or underground economy, comprises economic activity that takes place outside of formal channels—generally to avoid governmental scrutiny and taxation—and is not included in the officially calculated gross national product (GNP). It results in significant social, economic, cultural, and political challenges. To better understand the impact of the show economy on the economies of 150 countries, Mastercard commissioned Econsult Solutions’ former thought leadership joint venture, ESI ThoughtLab to develop a web-based tool – Pathways to Inclusion. The Pathways tool consists of three components:
- A series of multi-metric indices that measure access to financial services, the use of cash, and the use of financial tools and institutions.
- Estimates of the size of the shadow economy
- The impact of policies to discourage the use of cash, modernize the payment infrastructure, and encourage the use of digital payments have on the size of the shadow economy. ESI ThoughtLab also estimated the potential impact of the reduction of the shadow economy on government revenue, government corruption, and the quality of life as measured by the Human Development Index.
The results of the analysis were incorporated into an online interactive tool that allows the user to explore the data underpinning the indices, estimate the size of the shadow economy, and visualize the impacts of the policy measures.