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Market Consumption and Hidden Consumption: A Test for Substitutability

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Author Info
Bruno Chiarini
Elisabetta Marzano

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Abstract

In this paper we perform an empirical analysis on the relationship between private consumption and underground economy for the Italian case. We find that private market consumption and underground (or hidden) consumption may be defined as ”complementary goods”: an increase in underground consumption tends to rise family market consumption and increase its marginal utility. An implication of this result is that the nonmarket sector does not offer hedging opportunities to the consumer-worker as stressed in Busato and Chiarini (2002) artificial economy. Moreover, wealth effects associated with a change in underground consumption are negative. A statistical model confirms this structural interpretation.

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Paper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 12_2006.

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Date of creation: 15 Jun 2006
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Handle: RePEc:prt:dpaper:12_2006

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D18 - Microeconomics - - Household Behavior - - - Consumer Protection
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

References listed on IDEAS
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  1. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March. [Downloadable!] (restricted)
  2. Francesco Busato & Bruno Chiarini, 2004. "Market and underground activities in a two-sector dynamic equilibrium model," Economic Theory, Springer, vol. 23(4), pages 831-861, May. [Downloadable!] (restricted)
  3. Laura Castellucci & Maurizio Bovi, 1999. "What Do We Know About The Size Of The Underground Economy In Italy Beyond The "Common Wisdom"? Some Empirically Tested Propositions," Departmental Working Papers 120, Tor Vergata University, CEIS. [Downloadable!]
  4. Giles, David E A, 1999. "The Rise and Fall of the New Zealand Underground Economy: Are the Responses Symmetric?," Applied Economics Letters, Taylor and Francis Journals, vol. 6(3), pages 185-89, March. [Downloadable!] (restricted)
  5. Edgar L. Feige, 2005. "The Underground Economy And The Currency Enigma," Macroeconomics 0502004, EconWPA. [Downloadable!]
  6. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-54, March. [Downloadable!] (restricted)
  7. Karras, Georgios, 1994. "Government Spending and Private Consumption: Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 9-22, February. [Downloadable!] (restricted)
  8. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June. [Downloadable!] (restricted)
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  9. Mustafa Besim & Glenn P. Jenkins, 2005. "Tax compliance: when do employees behave like the self-employed?," Applied Economics, Taylor and Francis Journals, vol. 37(10), pages 1201-1208, June. [Downloadable!] (restricted)
  10. Bruno Chiarini & Elisabetta Marzano, 2004. "Dimensione E Dinamica Dell'Economia Sommersa: Un Approfondimento Del Currency Demand Approach," Working Papers 4_2004, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  11. Ogaki, M. & Park, Y.Y., 1989. "A Cointegration Approach To Estimating Preference Parameters," RCER Working Papers 209, University of Rochester - Center for Economic Research (RCER).
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  12. Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 2000. "Are Underground Workers More Likely to be Underground Consumers?," Economic Journal, Royal Economic Society, vol. 110(466), pages 838-60, October. [Downloadable!] (restricted)
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  13. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  14. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
  15. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October. [Downloadable!] (restricted)
  16. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yoke-Kee Eng & Chin-Yoong Wong, 2008. "A short note on business cycles of underground output: are they asymmetric?," Economics Bulletin, Economics Bulletin, vol. 3(58), pages 1-10. [Downloadable!]
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