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Characteristics of the household sector of the hidden economy in an emerging economy

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  • Sandra Sookram

    ()
    (Sir Arthur Lewis Institute of Social & Economic Studies, University of the West Indies, St. Augustine, Trinidad & Tobago)

  • Friedrich G. Schneider

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

  • Patrick Kent Watson

    ()
    (Sir Arthur Lewis Institute of Social & Economic Studies, University of the West Indies, St. Augustine, Trinidad & Tobago)

Abstract

Using the case study of Trinidad and Tobago we investigate for an emerging economy the socioeconomic, demographic, and attitudinal characteristics that influence the propensity of individuals in the household sector to participate in the hidden economy and their perception of the risk of detection by tax authorities in doing so. To this end we analyze data gathered from a unique cross-sectional field survey covering 570 households. Our econometric results using multinomial logit and ordered probit models suggest that individual household members are motivated to undertake hidden economic activity because they believe taxes are too high, their incomes are too low, they have dependents to support, and they believe that the resulting tax evasion will go undetected.

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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 2006-05.

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Date of creation: May 2006
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Handle: RePEc:jku:econwp:2006_05

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Keywords: hidden economy; multinomial logit and ordered probit models; emerging economies;

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  1. Rolf Mirus & Roger S. Smith & Vladimir Karoleff, 1994. "Canada's Underground Economy Revisited: Update and Critique," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 235-252, September.
  2. D. McFadden & J. Hausman, 1981. "Specification Tests for the Multinominal Logit Model," Working papers 292, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Klarita G�rxhani & Arthur Schram, 2002. "Tax Evasion and the Source of Income," Tinbergen Institute Discussion Papers 02-098/1, Tinbergen Institute.
  4. Hill, M Anne, 1983. "Female Labor Force Participation in Developing and Developed Countries-Consideration of the Informal Sector," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 459-68, August.
  5. Shishko, Robert & Rostker, Bernard, 1976. "The Economics of Multiple Job Holding," American Economic Review, American Economic Association, vol. 66(3), pages 298-308, June.
  6. Warneryd, Karl-Erik & Walerud, Bengt, 1982. "Taxes and economic behavior: Some interview data on tax evasion in Sweden," Journal of Economic Psychology, Elsevier, vol. 2(3), pages 187-211, September.
  7. Isachsen, Arne Jon & Strom, Steinar, 1980. " The Hidden Economy: The Labor Market and Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(2), pages 304-11.
  8. Byung-Yeon Kim, 2005. "Poverty and informal economy participation," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 163-185, 01.
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