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Individual behaviour in the cash/shadow economy in Australia: Facts, empirical findings and some mysteries

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  • Friedrich Schneider

    ()
    (Department of Economics, Johannes Kepler University Linz, Austria)

  • Valerie Braithwaite

    ()
    (Research School of Social Science, ANU, Canberra, ACT 0200 Australia.)

  • Monika Reinhart

    ()
    (Centre for Tax System Integrity, ANU, Canberra, ACT 0200 Australia.)

Abstract

This paper first gives an explanation of the behaviour which motivates individuals to engage in the shadow economy. It will be shown that people who fear being caught by tax authorities will be less likely to work in the shadow economy and those who earn more money in the official economy will also work less in the shadow economy. The result of a logistic regression shows that if others are seen to be engaged in the shadow economy then this increases subsequent demand for such activities. It was found that on average, a shadow economy worker earned AUS$2135.31 during the year 2000, and households spent AUS$2,293.00 for these services. Using micro-data to calculate an overall aggregate figure for the estimated size of the shadow economy in Australia during the year 2000, it was found that between 4.81% and 8.8% of the gross national income (GNI) was earned in the cash economy.

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Bibliographic Info

Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2001-07.

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Date of creation: Mar 2001
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Handle: RePEc:jku:econwp:2001_07

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  1. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  2. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages F370-80, June.
  3. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
  4. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  5. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F338-47, June.
  6. Friedrich Schneider & Christopher Bajada, 2003. "The Size and Development of the Shadow Economies in the Asia-Pacific," Economics working papers 2003-01, Department of Economics, Johannes Kepler University Linz, Austria.
  7. David E. A. Giles, 1999. "Modelling the hidden economy and the tax-gap in New Zealand," Empirical Economics, Springer, vol. 24(4), pages 621-640.
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