Nonparametric expenditure-based estimation of income under-reporting and the underground economy

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Nonparametric expenditure-based estimation of income under-reporting and the underground economy

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Lindsay M. Tedds

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Lindsay M. Tedds

Abstract

There is considerable interest in measuring the underground economy using microeconomic data. One such method estimates income under-reporting by households by assuming a known, parametric form of the Engel curve and making the further parametric assumption that households under-report their income by a constant fraction, independent of income. This paper proposes a nonparametric approach which avoids functional form restrictions and enables the reporting function to vary across income levels and household characteristics. I illustrate by estimating the effect of the Canadian Goods and Services Tax on income under-reporting.

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Paper provided by McMaster University in its series Department of Economics Working Papers with number 2004-17.

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Length: 38 pages
Date of creation: 2004
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Handle: RePEc:mcm:deptwp:2004-17

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," William Davidson Institute Working Papers Series wp865, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
Other versions:
- Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," IEHAS Discussion Papers 0701, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
Knut R. Wangen, 2005. "An Expenditure Based Estimate of Britain's Black Economy Revisited," Discussion Papers 414, Research Department of Statistics Norway. [Downloadable!]
Lindsay M. Tedds, 2005. "Keeping It Off The Books: An Empirical Investigation Into the Characteristics of Firms That Engage In Tax Non-Compliance," Department of Economics Working Papers 2005-01, McMaster University. [Downloadable!]
Engström, Per & Holmlund, Bertil, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," Working Paper Series 2006:12, Uppsala University, Department of Economics. [Downloadable!]
Other versions:
- Per Engström & Bertil Holmlund, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor and Francis Journals, vol. 41(19), pages 2419-2430. [Downloadable!] (restricted)

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