Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy
AbstractWe contribute to the debate on how to assess the size of the shadow economy by proposing a reinterpretation of the traditional Currency Demand Approach (CDA) a là Tanzi. In particular, we introduce three main innovations. First, we take a direct measure of cash transactions (the flow of cash withdrawn from bank accounts relative to total noncash payments) as the dependent variable in the money demand equation. This allows us to avoid using the Fisher equation, overcoming two severe critiques to the traditional CDA. Second, we include among covariates two distinct measures of ‘detected’ tax evasion, in place of the tax burden level. Finally, we control also for a new ‘criminal’ component of the shadow economy, considering money demand for illegal activities like drug dealing and prostitution. We propose an application of this ‘modified – CDA’ to a panel of 91 Italian provinces for the years 2005-2008.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Former Department of Economics and Public Finance "G. Prato", University of Torino in its series Working papers with number 22.
Length: 25 pages
Date of creation: Sep 2011
Date of revision:
Shadow economy; Currency demand approach; Cash transactions; Evasion; Crime;
Find related papers by JEL classification:
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-EEC-2011-09-16 (European Economics)
- NEP-IUE-2011-09-16 (Informal & Underground Economics)
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.:
- Michael Pickhardt & Jordi Sarda, 2011.
"The size of the underground economy in Germany: a correction of the record and new evidence from the modified-cash-deposit-ratio approach,"
European Journal of Law and Economics,
Springer, vol. 32(1), pages 143-163, August.
- Michael Pickhardt & Jordi Sarda, . "The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-Deposit-Ratio approach," Working Papers 201036, Institute of Spatial and Housing Economics, Munster Universitary.
- Pickhardt, Michael & Sardà Pons, Jordi, 2010. "The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-deposit-Ratio approach," Working Papers 2072/148479, Universitat Rovira i Virgili, Department of Economics.
- Pickhardt, Michael & Sarda, Jordi, 2010. "The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-Deposit-Ratio approach," CAWM Discussion Papers 36, Center of Applied Economic Research Münster (CAWM), University of Münster.
- Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2005.
"How Do Institutions Affect Corruption and the Shadow Economy,"
0505, Exeter University, Department of Economics.
- Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2009. "How do institutions affect corruption and the shadow economy?," International Tax and Public Finance, Springer, vol. 16(6), pages 773-796, December.
- Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2005. "How do Institutions Affect Corruption and the Shadow Economy?," Public Economics 0502012, EconWPA, revised 24 Feb 2005.
- Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, 06.
- Matthias Drehmann & Charles Goodhart, 2000. "Is Cash Becoming Technologically Outmoded Or Does it Remain Necessary to Facilitate," FMG Discussion Papers dp358, Financial Markets Group.
- Charles Goodhart & Malte Krueger, 2001.
"The impact of technology on cash usage,"
LSE Research Online Documents on Economics
25048, London School of Economics and Political Science, LSE Library.
- Alvarez, Fernando E & Lippi, Francesco, 2007.
"Financial Innovation and the Transactions Demand for Cash,"
CEPR Discussion Papers
6472, C.E.P.R. Discussion Papers.
- Fernando Alvarez & Francesco Lippi, 2009. "Financial Innovation and the Transactions Demand for Cash," Econometrica, Econometric Society, vol. 77(2), pages 363-402, 03.
- Fernando Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," EIEF Working Papers Series 0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
- Fernando E. Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," NBER Working Papers 13416, National Bureau of Economic Research, Inc.
- Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1, May.
- Francesco Lippi & Alessandro Secchi, 2008.
"Technological change and the demand for currency: An analysis with household data,"
Temi di discussione (Economic working papers)
697, Bank of Italy, Economic Research and International Relations Area.
- Lippi, Francesco & Secchi, Alessandro, 2006. "Technological change and the demand for currency: An analysis with household data," CEPR Discussion Papers 6023, C.E.P.R. Discussion Papers.
- Michael Pickhardt & Jordi Sarda Pons, 2006. "Size and scope of the underground economy in Germany," Applied Economics, Taylor & Francis Journals, vol. 38(14), pages 1707-1713.
- repec:cup:cbooks:9780521814089 is not listed on IDEAS
- J. Ferwerda & I. Deleanu & B. Unger, 2010. "Revaluating the Tanzi-model to estimate the underground economy," Working Papers 10-04, Utrecht School of Economics.
- Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
- Benno Torgler, 2003. "Tax Morale and Institutions," CREMA Working Paper Series 2003-09, Center for Research in Economics, Management and the Arts (CREMA).
- Roberta Zizza, 2002. "Metodologie di stima dellÂ’economia sommersa: unÂ’applicazione al caso italiano," Temi di discussione (Economic working papers) 463, Bank of Italy, Economic Research and International Relations Area.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simone Pellegrino).
If references are entirely missing, you can add them using this form.