Some countries, for example the United Kingdom and Italy, have recently decided to include some illegal...

Some countries, for example the United Kingdom and Italy, have recently decided to include some illegal activities, such as drugs and prostitution, and their calculations of GDP. Other countries do not do this. How would this change impact of the other countries GDP? Do you think such activities should be included? (consider how the legalization of recreational marijuana impacted the economy.)

Expert Solution

For developed nations, the illicit activities account for around 10% of the GDP. Thus, if such activities are counted in GDP, this will increase the GDP numbers for that country, surely. The problem with the underground activities is that underground economic transactions go unreported, which distort the accuracy of a nation's gross domestic product, which consequently may adversely affect a government's monetary policies.

Since in this globalised world, all countries are interrelated, thus, increase in GDP of UK, and distorted monetary policy, alongwith instability in the market will impact other nations as well. The trade will be impacted with UK.

The inclusion of such activities will bring some uncertainties in GDP calculation. So government should include such activities only after deep research. The tax structure should be improved in order to encourage people to report their income accurately.

Rahul Sunny answered 2 years ago

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