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Measuring the size of the hidden economy in Trinidad & Tobago, 1973-1999

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  • Alain Maurin
  • Sandra Sookram
  • Patrick Kent Watson
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    Abstract

    In this paper, an attempt is made to measure the hidden economy of Trinidad & Tobago over the period 1973-1999, within the Structural Cointegrating VAR (SCVAR) framework. Using a Tanzi-type currency demand approach as a starting point, a multiple equation SCVAR model is estimated that contains two long-run relationships linking the demand for currency with other variables. The model is evaluated on the basis of its persistence profiles, its impulse responses and other statistical criteria. It is solved using a Gauss-Siedel algorithm and is used to establish that the size of the hidden economy rose from a low of about 14% of measured GDP in the early 1970s to a high of 36% in 1981, and is currently about 20% of measured GDP. Hidden economic activity is also found to be highly positively correlated with activity in the regular economy.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 20 (2006)
    Issue (Month): 3 ()
    Pages: 321-341

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    Handle: RePEc:taf:intecj:v:20:y:2006:i:3:p:321-341

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    Related research

    Keywords: Caribbean; Trinidad & Tobago; hidden economy; structural cointegrating VAR models;

    References

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    1. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
    2. Garratt, A. & Lee, K. & Pesaran, M. H. & Shin, Y., 1998. "A Long-run Structural Macro-econometric Model of the UK," Cambridge Working Papers in Economics 9812, Faculty of Economics, University of Cambridge.
    3. Pesaran, M.H. & Shin, Y., 1993. "Cointegration and Speed of Convergence to Equilibrium," Cambridge Working Papers in Economics 9311, Faculty of Economics, University of Cambridge.
    4. Ebrima Faal, 2003. "Currency Demand, the Underground Economy, and Tax Evasion," IMF Working Papers 03/7, International Monetary Fund.
    5. A Garratt & K Lee & M H Pesaran & Yongcheol Shin, 1999. "A structural cointegrating VAR approach to macroeconometric modelling," ESE Discussion Papers 8, Edinburgh School of Economics, University of Edinburgh.
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