• Kyodo

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The value of tax dodging, gambling, prostitution and other underground economic activities in Japan totaled 23.2 trillion yen in 1999, according to a Hamagin Research Institute estimate released this week.

This figure corresponds to 4.5 percent of the nation’s gross domestic product, which measures the output of legitimate economic activities within the nation’s borders in a year.

The Bank of Yokohama-affiliated institute devised the figure via a “monetary approach” based on estimates of cash demand, under the assumption that all underground activities are transacted in cash out of fear that noncash transactions could lead to prosecution.

The underground economy expanded during most of the 1970s and well into the 1980s, with the pace of growth accelerating in the late 1980s at the height of the asset-inflated bubble economy and peaking at 33.5 trillion yen in 1990, according to the institute.

The 33.5 trillion yen value was equal to 7.6 percent of Japan’s GDP that year, before adjustment for inflation.

However, when the bubble economy burst in the early 1990s and plunged the nation into a prolonged slump, the government offered tax cuts in the hope of spurring the economy, which should have led to a decrease in tax evasions, the Yokohama-based institute said.

It also estimates that tightened legislation governing gangsters and the sex industry curbed underground activity.

As to the future of the underground economy, the institute warns that tax dodging could increase as the government is forced to increase taxes to cover various social security costs incurred by an aging population.

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