Underground Economy Cushions Job Losses

... and is making tax dodging a game that is not exclusively played by the uber-wealthy any longer.

Carlos Cruz has a strategy for surviving the worst global recession in 60 years: pay less in taxes and pass the savings along to customers.

“I’m declaring half as much as I used to,” said Cruz, 29, who runs a painting business in Madrid. “Prices have fallen by 30 percent and customers will choose you for a difference of as little as 50 euros ($67.70),” said Cruz, an Ecuadorian who has lived in Spain since 2001.

The production of goods and services that are lawful, though not declared, may grow the most as a proportion of total output since 2000, according to Friedrich Schneider, a professor at Austria’s Johannes Kepler University of Linz.

The shift, measured by tax analysts and economists using surveys, money-supply data and anecdotal evidence, is caused by businesses going off the books to cut costs and workers taking informal jobs to survive rising unemployment. It offers a buffer against the ravages of the crisis and may help explain why the slowdown hasn’t prompted more social unrest.

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