Business Cycle Properties of the Legitimate and Underground Economy in Australia

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Business Cycle Properties of the Legitimate and Underground Economy in Australia

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Christopher Bajada

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Chris Bajada

Abstract

The business cycle characteristics of the legitimate economy have been examined quite extensively. In this paper we extend the standard business cycle analysis to the underground economy and compare it to the legitimate economy. Using National Bureau of Economic Research dating methodologies we find that classical cycles exhibit strong incidence of asymmetry while growth cycles appear relatively symmetric. We find that changes in legitimate activity lead to changes in underground activity but that the underground economy responds more to negative shocks in legitimate activity than to positive shocks. This implies that the underground economy is deepening economic downturns and increasing the volatility of the business cycle in general. Copyright 2003. The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 79 (2003)
Issue (Month): 247 (December)
Pages: 397-411
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Handle: RePEc:bla:ecorec:v:79:y:2003:i:247:p:397-411

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Trevor Breusch, 2005. "Australia's Cash Economy: Are the estimates credible?," Macroeconomics 0509025, EconWPA, revised 23 Sep 2005. [Downloadable!]
Ratbek Dzhumashev & Emin Gahramanov, 2009. "A Stochastic Growth Model with Income Tax Evasion: Implications for Australia," Economics Series 2009_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
Sanidas, Elias, 2005. "The Australian Dollar's Long-Term Fluctuations and Trend: The Commodity Prices-cum-Economic Cycles Hypothesis," Economics Working Papers wp05-29, School of Economics, University of Wollongong, NSW, Australia. [Downloadable!]
Breusch, Trevor, 2006. "Australia’s underground economy – redux?," MPRA Paper 1581, University Library of Munich, Germany. [Downloadable!]

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This page was last updated on 2009-11-28.

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