Officials earn more on illegal businesses. Let's see what happens for example with cigarettes. Europe has set a very high excise tax on these products. Now everywhere you can buy illegal cigarettes. They bring money to the officials and the police, but the state loses income.
In Germany there are people selling cigarettes in most parks. These guys, usually Asians, can really scare you. You're walking, thinkinking about something, and one of them jumps out of the bush nearby holding a bag of cigs

I'm not making it up, they are hiding these bags in the bushes so it's not that obvious. I've seen the police chasing them a couple times.