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

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Author Info

  • Bonggeun Kim

    (Korean Institute for International Economic Policy)

  • John Gibson
  • Chul Chung

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 self employed, and provides an exact estimate of the degree of under reporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of self employed households in Korea and 47 percent of the income of Russian self-employed households is not reported.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Labor Economics Working Papers with number 22996.

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Date of creation: Jan 2009
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Handle: RePEc:eab:laborw:22996

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Related research

Keywords: Engel curve; Measurement error; Self-employment; Underground economy;

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References

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  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. 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.
  3. Herb J. Schuetze, 2002. "Profiles of Tax Non-compliance Among the Self-Employed in Canada: 1969 to 1992," Canadian Public Policy, University of Toronto Press, vol. 28(2), pages 219-237, June.
  4. John Gibson & Steven Stillman, 2004. "CPI Bias and Real Living Standards in Russia During The Transition," Econometric Society 2004 North American Summer Meetings 504, Econometric Society.
  5. Edvard Johansson, 2005. "An estimate of self-employment income underreporting in Finland," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 99-109.
  6. Beatty, Timothy K.M. & Larsen, Erling Roed, 2004. "Using Engel Curves To Estimate Bias In The Canadian Cpi As A Cost Of Living Index," Working Papers 15836, University of British Columbia, Food and Resource Economics.
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Cited by:
  1. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
  2. Merike Kukk & Karsten Staehr, 2013. "Income underreporting by households with business income. Evidence from Estonia," Bank of Estonia Working Papers wp2013-6, Bank of Estonia, revised 26 Jul 2013.

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