Economics- The Underground Ecoomy?

Question

http://www.celcee.edu/publications/digest/Dig04-04.html

What problems does the Underground Economy create for the Government?

2. Why does the existence of the Underground Economy distort the GDP figures?

Answer 1

The major problem for the government is that the underground economy can not be taxed by income taxes or regulated. In the US the tax problem is not large both because the fraction of GDP is small and that it is mostly low wage labor so the tax rates are small so little revenue is lost. Health and safety concerns problems are more prevalent in the underground economy so the lack of regulation can cause difficulties.
There is also a problem in measuring fluctuations in the growth rate of the economy for the purpose on conducting monetary policy, The under ground economy probable show smore variation but the signal it sends is invisible to the fed.