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Estimating the underground economy by using MIMIC models: A response to T. Breusch´s critique

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Abstract

Breusch (2005b) critically addresses an important and challenging question: Is it reliable to use the Multiple Indicators Multiple Causes model to estimate Shadow Economy? Breusch concludes that this approach is not suitable for the purpose. Breusch’s paper highlights the different procedures and hypotheses about the estimation of the size and development of the shadow economy in three papers: Giles and Tedds (2002a), Dell’Anno and Schneider (2003) and Bajada and Schneider (2005). In this paper, we will react and provide some answers to Breusch’s criticisms with special reference to the criticisms of the Dell’Anno and Schneider (2003) paper. According with us, the MIMIC model is still one of the best approaches to this purpose.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2006-07.

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Date of creation: Jul 2006
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Handle: RePEc:jku:econwp:2006_07

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Keywords: shadow economy; MIMIC model; structural modelling.;

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  1. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
  2. Dell'Anno, Roberto, . "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Economics Working Papers 2003-7, School of Economics and Management, University of Aarhus.
  3. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005.
  4. Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, vol. 32(4), pages 965-976, April.
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Cited by:
  1. Friedrich Schneider, 2006. "Shadow Economies and Corruption all over the World: What do we really Know?," CESifo Working Paper Series 1806, CESifo Group Munich.
  2. Ceyhun Elgin & Friedrich Schneider, 2013. "Shadow Economies in OECD Countries: DGE vs. MIMIC Approaches," Working Papers 2013/13, Bogazici University, Department of Economics.
  3. Brambila Macias, Jose, 2008. "Modeling the Informal Economy in Mexico. A Structural Equation Approach," MPRA Paper 8504, University Library of Munich, Germany.
  4. Vjekoslav Klaric, 2011. "Estimating the size of non-observed economy in Croatia using the MIMIC approach," Financial Theory and Practice, Institute of Public Finance, vol. 35(1), pages 59-90.

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