Are black markets good for the economy?

Question

Since the government can't tax the black market, it is a very free market. Or is it?

Does the illegal trade of contraband goods and services (or smuggling legal goods and services through illegal channels to avoid regulations/taxes) help to stimulate the economy in the legal sector?

Answer 1

Goods and services that are controlled or forbidden by governments but continue to be bought and sold privately are said to be traded on the black market. Illegal drugs, pornography and some forms of gambling are classic examples of goods and services that trade on the black market. Black markets tend to thrive in highly controlled economies where governments ration many products such as food, gas and luxury goods.

Goods in the black market do not trade in open view of the authorities. When products are banned, they can be smuggled or produced illegally, yielding profits based on demand. Legal goods and services are sometimes traded on the black market to avoid taxes.


Black market transactions are potentially disruptive to society. When they occur in goods and services that have been legally banned, the black market undermines the ban. When black market transactions occur in markets for legal goods and services in order to avoid taxes or regulations, they put legitimate businesses at a disadvantage. Moreover, governments must levy higher taxes to compensate for the lost revenue.

Answer 2

Advantages Of Black Market

Answer 3

Generally, there is a balance in the economy between good and bad. Black market will exist in any forms due to demand but it will also derives on the mentality of the people and as well as the educational level.

The stages of the development or economic reform will be varied as the educational aspect has been developed. For instance, the black market in a developed country will be initially lower than the third world countries or developing countries. These countries which are under development needed a rapid pace and there is a need of black market to support the booming of the countries economic. Dark economic factor such as bribery, smuggling and etc will be a core development of the country's economic.

In fact, most of what we called now the developed market has initially started out as the same. For instance, US has been thru an era like this..remember those days of the Mafia days and people like Al Capone.

Undeniably, it will depends on the stages of the economic that the country belongs. A country under development will need black market to support the economic as a backbone whereby the government may not be able to do anything as yet. A radical changes in regulation may not be effective as it will only created an event of struggle for the social aspect and the community of people in the country.

As for developed market with population of well educated, the black market may also in need but at a smaller scale to support the rest of the people which are not educated. It's a sort of equalblium for such free market to exist.

Answer 4

First, I dispute the assertion that the black market is "very free". There are large costs involved in avoiding the law, which are passed on to the illicit consumers in the manner of a tax. Further, the amount of this 'tax' is variable (depending on chance and relative enforcement strength), imposing a cost on the (generally) risk-averse involved. This can be seen as trading the accounting profit for risk, making the smugglers act like insurance agents (taking more money than they would normally under a free market in exchange for the risk that they're caught).

Second, the 'tax' in not collected by the government but is instead largely 'wasted' on inefficient methods of enforcement and the like. (If there were no black market dealings, less police would be needed in that area, freeing them to do more productive work in crime prevention or the public sector.)

Third, black market good are generally final, requiring no value-added enhancements (beyond the expensive transportation, as described above). This means that their primary effect is to compete with, rather than complement, legal goods.

As a result, black market good benefit primarily the 'insurance agents' and 'producers' at the expense of legal producers and consumers. If the economy is measured only in terms of legal goods, black markets have a negative effect. If the black market was included (say, in a social welfare function) it likely causes an increase in 'general welfare', since the core consumers (those who would be willing to pay vast sums of money for, say, drugs) gain great consumer surplus from such transactions.

As I subscribe to the former rather than the latter theory, I don't see black markets as beneficial to the economy. In countries where black markets deal in 'useful' goods (for one's own definition of the word) this theory is invalid, and as such the latter tends to be correct. This is of course subject to various economic caveats, but in general it holds.

Answer 5

The illegal products sold on the black market are almost always not just bad for the economy but also bad for human health and well being in general. But the legal products sold on the black market are good because it saves the people from having to pay taxes. And our huge government who employs millions of people needs to majorly downsize so it doesn't have to take money from us till we are poor so, that it has to put us on welfare

Answer 6

In some degree it is good. The black market is actually very small.
But we must think of the people that have their products stolen to be sold on the black market. They put that loss towards the insurance companies and they charge all of us more to do business. Seems to cancel out the benefits

Answer 7

No, black market is not good for the economy. Taxes protect local economy. If smugglers import goods form other countries without paying local taxes - they support the economy of the foreign country not the local country :)

Answer 8

I guess looking into what the flea market does as well Ebay. Most of them are a form of Free trade. Kinda like a legal black market, selling mostly legal goods.
Like Drug black market, that should be bad cause when goods comes in, the money leave the country. And that money is to make more drug, and then the Goverment and police has to combate it, so it cost us more money. So that part of black market is bad.

Answer 9

For those looking for quick buck black markets are great. For those interested in stable growing middle class and the development of new products they are harmful. Since we are in another gilled ear they are of some good for those on the bottom.

Answer 10

one thing their always has been and always will be is a black market- the government just cant stop it because people want to find a better way to get things at lower prices. It may not be great for big business but its a way to get them to lower prices.