Context and Objectives of the Study
The informal economy is a growing concern for all economies irrespective of their size and development status. It has a significant bearing on economic and social development, national accounts, and public finance. There, however, is no common consensus on the definition of the informal economy. The quality of information on the national economy is vital for economic policymaking. Various studies in the past have reported the prevalence of a sizeable informal economy in Nepal and this is therefore a matter of important concern. The informal economy is a broad concept with various names in the economic literature such as shadow, underground, black, hidden, unofficial, parallel, cash, unreported, or unrecorded economy. There is no common understanding of whether they all have the same meanings or the same things or not. What relationships they have with one another is rarely explained in the literature. In this study, the informal economy is defined in terms of unreported or untraced income resulting from illegal as well as legal activities; mostly from monetary, or non-monetary transactions that would generally be taxed if reported at the taxing authorities. In this respect, it includes all market-and non-market-based production of goods and services, whether legal or illegal, that escapes detection in or is intentionally excluded from the official estimates of GDP. In addition to this, misreporting of data related to production activities, and unrecorded, and unreported activities are also part ofthe informal economy.
