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Revaluating the Tanzi-model to estimate the underground economy

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  • J. Ferwerda
  • I. Deleanu
  • B. Unger

Abstract

Since the early 1980s, the interest in the nature and size of the non-measured economy (both the informal and the illegal one) was born among researchers in the US. Since then, several models to estimate the shadow and/or the underground economy appeared in the literature, each with its own theoretical pros and cons. In this paper we show that it is possible to overcome earlier expressed criticism of the Tanzi-model (1983). Its lack of a base year without any underground economy can be overcome, by using the natural experiment of the introduction of the Euro. However, this paper also comes up with new criticism. It shows that the crucial relationship of the Tanzi-model between taxes and the demand for cash money is not time robust, hence the model is not useful for estimating the underground economy nowadays. We believe that the change in financial conditions could partially explain the decline in the relevance of taxes as a means to evaluate the underground economy. We build a revised Tanzi model and try to find variables apart from tax evasion incentives in order to explain the underground economy

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/43951/10-04.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 10-04.

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Length: 29 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:use:tkiwps:1004

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Keywords: Underground Economy Estimation; Shadow Economy; Tax Evasion;

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Cited by:
  1. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2012. "Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy," Temi di discussione (Economic working papers) 864, Bank of Italy, Economic Research and International Relations Area.
  2. Hana Zídková, 2012. "Discussion of Methods for Estimating the Shadow Economy," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2012(6), pages 3-17.
  3. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2011. "Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy," Working papers 22, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  4. Guerino Ardizzi & Eleonora Iachini, 2013. "Why are payment habits so heterogeneous across and within countries? Evidence from European countries and Italian regions," Questioni di Economia e Finanza (Occasional Papers) 144, Bank of Italy, Economic Research and International Relations Area.

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