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Estimating the income reporting function for the self-employed

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  • Lindsay Tedds

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Abstract

There is considerable interest in measuring the underground economy using microeconomic data. One such method estimates income under-reporting by households by assuming a known, parametric form of the Engel curve and making the further parametric assumption that households under-report their income by a constant fraction, independent of income. This paper proposes a nonparametric approach which avoids functional form restrictions and enables the reporting function to vary across income levels and household characteristics. I illustrate by estimating the effect of the Canadian Goods and Services Tax on income under-reporting.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 38 (2010)
Issue (Month): 3 (June)
Pages: 669-687

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Handle: RePEc:spr:empeco:v:38:y:2010:i:3:p:669-687

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Related research

Keywords: Income under-reporting; Nonparametric estimation; Engel curve; C14; D12; O17;

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References

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  1. Panayiota Lyssiotou & Panos Pashardes & Thanasis Stengos, 2004. "Estimates of the black economy based on consumer demand approaches," Economic Journal, Royal Economic Society, vol. 114(497), pages 622-640, 07.
  2. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  3. Andrew Dilnot & C. N. Miller, 1981. "What do we know about the black economy?," Fiscal Studies, Institute for Fiscal Studies, vol. 2(1), pages 58-73, March.
  4. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
  5. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
  6. Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June.
  7. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  8. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
  9. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages F381-89, June.
  10. Tedds, Lindsay, 2005. "The Underground Economy in Canada," MPRA Paper 4229, University Library of Munich, Germany.
  11. Richard Blundell & Alan Duncan & Krishna Pendakur, 1998. "Semiparametric estimation and consumer demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 435-461.
  12. Li, Q. & Wang, Suojin, 1998. "A simple consistent bootstrap test for a parametric regression function," Journal of Econometrics, Elsevier, vol. 87(1), pages 145-165, August.
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Citations

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Cited by:
  1. Christian Traxler, 2009. "Voting over taxes: the case of tax evasion," Public Choice, Springer, vol. 140(1), pages 43-58, July.
  2. Diego Martínez López, 2011. "How different are the Spanish self-employed workers by underreporting their incomes?," Working Papers. Serie EC 2011-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Lindsay Tedds, 2010. "Keeping it off the books: an empirical investigation of firms that engage in tax evasion," Applied Economics, Taylor and Francis Journals, vol. 42(19), pages 2459-2473.
  4. Adam, Antonis & Kammas, Pantelis, 2012. "(Tax evasion) power to the people: does "early democratization" increase the size of the informal sector?," MPRA Paper 43343, University Library of Munich, Germany.
  5. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Hunter College Department of Economics Working Papers 438, Hunter College: Department of Economics.

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