By Jane Han
Staff Reporter

South Korea's underground economy has shrunk slightly in recent years, according to the National Assembly ― but it is still bigger than those of advanced economies.

This means that more workers, merchants and consumers here exchange goods and services under the table without paying any taxes.

The country's estimated underground economy, or black market, accounted for 27.6 percent of its gross domestic product (GDP) in 2005, the fourth-highest among the Organization for Economic Cooperation and Development (OECD) members, the National Assembly Budget Office's analysis of 28 countries showed Tuesday.

This is slightly down from the 28.2 percent and 28.8 percent that South Korea's gray economy took up in its GDP in 2003 and 2004, respectively, but still substantially higher than the levels seen in advanced economies, such as the United States and Japan.

The underground economy in the United States accounted for 7.9 percent of its GDP in the same year, while for Japan it was 8.8 percent; the United Kingdom, 10.3 percent; and France, 13.2 percent.

South Korea was closer to the likes of Turkey, Mexico and Portugal.

Turkey ranked No. 1, with its shadow economy taking up more than 33 percent of its GDP, followed by Mexico (31.7 percent) and Portugal (28.2 percent), according to the report.

The underground economy refers to "off-the-books" business transactions, through which companies and individuals evade taxes through untraceable settlements such as money laundering or cash transactions.

Smuggling, prostitution, bribery and property speculation are some of the illegal activities that encompass a gray economy, which ultimately increases the burden on taxpayers and risks for consumers who deal with businesses operating illegitimately.

The parliamentary office said the government must ramp up regulations to clamp down on illegal economic activities, as a larger parallel economy leads to unnecessary social costs and sends a negative message about South Korea to the international community.

The latest report, which cited data from research done by Professor Friedrich Schneider of the University of Linz, Austria, showed that South Korea's underground economy ranked 100th among 145 countries worldwide.

Bolivia's shadow economy was the biggest in the world with sketchy transactions making up more than 67 percent of its GDP, followed by Georgia (66.4 percent), Zimbabwe (64.6 percent) and Panama (62.2 percent).

jhan@koreatimes.co.kr