Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed

53 Pages Posted: 21 Apr 2017

See all articles by Bonggeun Kim

Bonggeun Kim

Hanyang University - Economics

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Chul Chung

Korea Institute for International Economic Policy

Date Written: June 10, 2009

Abstract

The income of the self-employed is often assumed to be understated in economic statistics. Controversy exists about the best method for estimating the extent of under-reporting and about the resulting measures of the size of the underground economy. This paper refines a method developed by Pissarides and Weber (1989) and uses discrepancies between food shares and reported incomes of the self-employed and other households to estimate under-reporting by the self-employed. In contrast to previous studies our panel data methodology distinguishes income under-reporting from transitory income fluctuations of the selfemployed, and provides an exact estimate of the degree of underreporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of selfemployed households in Korea and 47 percent of the income of Russian self-employed households is not reported.

Keywords: Engel Curve, Measurement Error, Self-Employment, Underground Economy

JEL Classification: C43, E31

Suggested Citation

Kim, Bonggeun and Gibson, John and Chung, Chul, Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed (June 10, 2009). KIEP Research Paper. Working paper 09-02 . Available at SSRN: https://ssrn.com/abstract=2955471 or http://dx.doi.org/10.2139/ssrn.2955471

Bonggeun Kim

Hanyang University - Economics ( email )

Seoul 133-791
Korea
+82-2-2220-1025 (Phone)

HOME PAGE: http://www.hanyang.ac.kr/search/new/eindex.html

John Gibson (Contact Author)

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

Chul Chung

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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