Mission Implausible Iii: Measuring the Informal Sector in a Transition Economy Using Macro Methods

25 Pages Posted: 31 May 2004

See all articles by Jan Hanousek

Jan Hanousek

Faculty of Business and Economics, Mendel University in Brno; Centre for Economic Policy Research (CEPR)

Filip Palda

University of Quebec at Montreal (UQAM) - Ecole Nationale d'Administration Publique

Date Written: May 2004

Abstract

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.

Keywords: Shadow economy, measureament of tax evasion, transition economies

JEL Classification: C53, C82, D12, D24, E26, E27, E41, H26, O47

Suggested Citation

Hanousek, Jan and Palda, Filip, Mission Implausible Iii: Measuring the Informal Sector in a Transition Economy Using Macro Methods (May 2004). Available at SSRN: https://ssrn.com/abstract=552124 or http://dx.doi.org/10.2139/ssrn.552124

Jan Hanousek (Contact Author)

Faculty of Business and Economics, Mendel University in Brno ( email )

Brno
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Filip Palda

University of Quebec at Montreal (UQAM) - Ecole Nationale d'Administration Publique ( email )

4750 Henri-Julien (#4040)
Montreal, Quebec H2T 3E5
Canada

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