Modelling the hidden economy and the tax-gap in New Zealand
AbstractThis paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and to diagnostic testing. Over the period 1968 to 1994, the size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country. Of course, not all of this foregone revenue would be recoverable, as not all of the activity in the underground economy is responsive to changes in taxation or other policies.
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Bibliographic InfoArticle provided by Springer in its journal Empirical Economics.
Volume (Year): 24 (1999)
Issue (Month): 4 ()
Note: received: August 1997/Final version received: March 1999
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Other versions of this item:
- David E. A. Giles, 1998. "Modelling the Hidden Economy and the Tax-Gap in New Zealand," Econometrics Working Papers 9810, Department of Economics, University of Victoria.
- David E. A. Giles, 1999. "Modelling the Hidden Economy and the Tax-Gap in New Zealand," Econometrics Working Papers 9905, Department of Economics, University of Victoria.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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