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Mission Implausible III: Measuring the Informal Sector in a Transition Economy using Macro Methods1

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  • Jan Hanousek

    ()

  • Filip Palda

    ()

Abstract

An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-683.

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Length: 25 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-683

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Keywords: shadow economy; measureament of tax evasion; transition economies;

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References

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  1. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
  2. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 38(1), pages 77-114, March.
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Cited by:
  1. Gérard Duchêne & Ramona Jimborean & Boris Najman, 2006. "Structure of Monetary Assets in Transition Economies: Financial Innovation and Structural Transformation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00270544, HAL.
  2. Guriev, Sergei & Rachinsky, Andrei, 2006. "The Evolution of Personal Wealth in the Former Soviet Union and Central and Eastern Europe," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2006/120, World Institute for Development Economic Research (UNU-WIDER).
  3. Chiumya, Chiza, 2007. "The Parallel Economy in Malawi: Size, Effect on Tax Revenue and Policy Options," MPRA Paper 9860, University Library of Munich, Germany.
  4. repec:hal:journl:hal-00270544 is not listed on IDEAS
  5. Stanisław Cichocki, 2008. "Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007," Working Papers, Faculty of Economic Sciences, University of Warsaw 2008-05, Faculty of Economic Sciences, University of Warsaw.

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