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Using Panel Data to Exactly Estimate Under-Reporting by the Self-Employed

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Author Info

  • John Gibson

    ()
    (University of Waikato)

  • Bonggeun Kim

    (Sungkyunkwan University and University of Waikato)

  • Chul Chung

    (Korea Institute for International Economic Policy)

Abstract

The income of the self-employed is often assumed to be understated in economic statistics. Debate exists about the extent of under-reporting and the resulting measures of the size of the underground economy. This paper refines a method developed by Pissarides and Weber (1989) and uses discrepancies between food shares and reported incomes to estimate under-reporting by the self-employed. In contrast to previous studies our panel data methodology distinguishes income under-reporting from transitory income fluctuations of the self-employed, and provides an exact estimate of the degree of under-reporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of self-employed households in Korea and 47 percent of the income of Russian self-employed households is not reported.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0815.pdf
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Bibliographic Info

Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 08/15.

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Length: 21 pages
Date of creation: 06 Oct 2008
Date of revision:
Handle: RePEc:wai:econwp:08/15

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Keywords: Engle curve; measurement error; self-employment; underground economy;

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References

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  1. John Gibson & Steven Stillman & Trinh Le, 2004. "CPI Bias and Real Living Standards in Russia During the Transition," Working Papers in Economics 04/02, University of Waikato, Department of Economics.
  2. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  3. Edvard Johansson, 2005. "An estimate of self-employment income underreporting in Finland," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 99-109.
  4. Herb J. Schuetze, 2002. "Profiles of Tax Non-compliance Among the Self-Employed in Canada: 1969 to 1992," Canadian Public Policy, University of Toronto Press, vol. 28(2), pages 219-237, June.
  5. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
  6. Beatty, Timothy K.M. & Larsen, Erling Roed, 2004. "Using Engel Curves To Estimate Bias In The Canadian Cpi As A Cost Of Living Index," Working Papers 15836, University of British Columbia, Food and Resource Economics.
  7. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  8. Dora L. Costa, 2001. "Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1288-1310, December.
  9. Panayiota Lyssiotou & Panos Pashardes & Thanasis Stengos, 2004. "Estimates of the black economy based on consumer demand approaches," Economic Journal, Royal Economic Society, vol. 114(497), pages 622-640, 07.
  10. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  11. Hamilton, Bruce W., 2001. "Black-White Differences in Inflation: 1974-1991," Journal of Urban Economics, Elsevier, vol. 50(1), pages 77-96, July.
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Cited by:
  1. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.

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