Question

if import of smuggling goods increases what will be the impact on aggregate demand and why ?

Answer 1

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Because smuggling isn’t regulated within the realms of the government’s tax net it can cause a loss of revenue. Also smuggling generates huge profits – most of which enters back to the syndicate to fund more criminality . This creates an increase in crime and may affect tourism, amongst other things.

Moreover, the evasion of tax and duties on smuggled goods inevitably mean a loss of tax income for the govt – which eventually reduces their ability to develop and progress as a state or country. While legitimate businesses pay a series of taxes on the products they produce, smuggling bypasses these taxes which slowly destroys the local economy.When smuggling overtakes a functioning economy, it creates instability. This then discourages business and investments from coming into the local economy..

Thus smuggling can destabilise the economy in multiple ways