Question

What does the article mean by working “off the books”? Why might it be difficult for the government to measure the production of small, cash-based firms?

Answer 1

It is used when referring to paying someone in cash without the transaction being recorded or taxed in the payer’s financial records or “books”.  Some companies engaging in this practice keep two sets of financial records, one ‘official’ for taxation purposes, one ‘genuine’, reflecting the actual state of affairs. This is one of the most common forms of corporate corruption.

Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable. However, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. Integrating the informal economy into the formal sector is an important policy challenge.

Because underground economic transactions go unreported, they distort the accuracy of a nation's gross domestic product, which consequently may adversely affect a government's monetary policies.