Black money is usually associated with illegal money in the economy. This money is earned by criminals through different illegal activities like terrorism, tax evasion, theft, etc. Black money exists with the real economy but it is unreported and unofficial. It runs a dual economy with the official economy. The interaction between real and black money makes it difficult to identify it.
What is the impact of black money on economy?
Black money brings socioeconomic evils to society and impacts the social and economic spheres of a society in a negative way. A large amount of underground economy leads to underestimation of economic efficiency of a country and gives an ugly picture of economic growth. The unreported economy is technically excluded from the gross national product but it still exists in the economy.
Holders of black money save themselves from paying taxes which hugely damages the tax revenues. It leads to the failure of the government to get sufficient tax revenue. Eventually, it forces the government to face large deficit financing which is unhealthy for the economy. In the end, people who are not responsible for any criminal activity have to bear the tax burden.
One of the major impacts is the creation of a wide gap between poor and rich. Rich gets richer and poor get poorer. The scarce goods are easily accessible to the black money holders in the economy which creates uneven development in the society.