Using Theory for Measurement: An Analysis of the Behaviour of the Underground Economy

Aarhus University Economics Paper No. 2005-19

33 Pages Posted: 19 Jun 2008

See all articles by Francesco Busato

Francesco Busato

Aarhus University - School of Business and Social Sciences

Bruno Chiarini

University of Naples, Parthenope

Vincenzo di Maro

University College London - Department of Economics

Date Written: November 28, 2005

Abstract

This paper generates high frequency data for the underground labor and the underground production using a theoretical general equilibrium model, over the sample 1970:01-1992:04 (32 years; 128 observations). We compare selected time series properties of the generated series with those of the corresponding series estimated with classical methodologies. The generated series for underground labor and underground production present a wider range and are more volatile than all other series estimated with classical methodologies. The analysis, next, suggests that the underground labor is pro-cyclical with respect to the GDP, that is lagging it by approximately one quarter, and that underground labor series generated from the theoretical model are highly persistent. Finally, the estimated correlation between the cyclical component of our generated-from-theory underground labor productivity and the actual series of aggregate GDP is negative (-0.34), while official yearly estimates present a positive (but very low) correlation with the cyclical component of GDP (0.12). This suggests that the underground sector has a positive impact over the productivity at the business cycle frequency, while it dampens productivity fluctuations at a lower frequency.

Keywords: Real Business Cycle Models, Underground Economy

JEL Classification: E32, E26

Suggested Citation

Busato, Francesco and Chiarini, Bruno and di Maro, Vincenzo, Using Theory for Measurement: An Analysis of the Behaviour of the Underground Economy (November 28, 2005). Aarhus University Economics Paper No. 2005-19, Available at SSRN: https://ssrn.com/abstract=1147615 or http://dx.doi.org/10.2139/ssrn.1147615

Francesco Busato (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

HOME PAGE: http://www.econ.au.dk/afn

Bruno Chiarini

University of Naples, Parthenope ( email )

Via Generale Parisi 13
Napoli, 80133
Italy

Vincenzo Di Maro

University College London - Department of Economics ( email )

Gower Street
London
London, WC1E 6BT
United Kingdom
00442076795577 (Phone)
00442076192775 (Fax)

HOME PAGE: http://www.vincenzodimaro.it

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