Mission Implausible III: Measuring the Informal Sector in a Transition Economy using Macro Methods
CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
University of Quebec at Montreal (UQAM) - Ecole Nationale d'Administration Publique
William Davidson Institute Working Paper No. 683
An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.
Number of Pages in PDF File: 25
Keywords: Shadow economy, measureament of tax evasion, transition economies
JEL Classification: C53, C82, D12, D24, E26, E27, E41, H26, O47working papers series
Date posted: May 31, 2004
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