This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and diagnostic testing. The size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country, though of course not all of this foregone revenue would be recoverable.
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Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number
9905.
Length: 26 pages Date of creation: 20 Feb 1999 Date of revision: Publication status: Forthcoming in "Empirical Economics", 1999. Handle: RePEc:vic:vicewp:9905
Note: ISSN 1485-6441. Earlier versions of this paper was released as University of Victoria Department of Economics Discussion Paper 97-8, April 1997, and UVic EWP9807, EWP9810. Contact details of provider: Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2 Phone: (250)721-8540 Fax: (250)721-6214 Web page: http://web.uvic.ca/econ More information through EDIRC
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Find related papers by JEL classification: C5 - Mathematical and Quantitative Methods - - Econometric Modeling H1 - Public Economics - - Structure and Scope of Government H2 - Public Economics - - Taxation, Subsidies, and Revenue
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