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International Comparisons of Household Saving Rates and Hidden Income

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  • Herbert Walther

    ()
    (Department of Economics, Vienna University of Economic and Business)

  • Alfred Stiassny

    ()
    (Department of Economics, Vienna University of Economic and Business)

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    Abstract

    In this paper, we argue that shadow activities and different levels of marketization of household production systematically distort international comparisons of aggregate gross household saving rates (HSRs): Higher shares of hidden income increase observed HSRs. Panel data for 18 (24) OECD-countries covering a period of a decade show that gross HSRs are positively related to the degree of corruption (used as a proxy for the propensity to shift economic activities into the shadow) and to the share of income from property and self employment. At the same time, gross HSRs are negatively related to the female employment rate, the ratio of indirect taxes to direct taxes, and to the tax wedge. One plausible story behind these phenomena might be that unobserved consumption and wages in the shadow labor market induce an upward bias in observed HSRs and profit shares, while the price level effects of a higher share of indirect taxes and a ‘welfare state’ effect lower observed HSRs.

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    File URL: http://epub.wu.ac.at/3737/1/wp148.pdf
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    Bibliographic Info

    Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp148.

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    Date of creation: Jan 2013
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    Handle: RePEc:wiw:wiwwuw:wuwp148

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    Postal: Welthandelsplatz 1, 1020 Vienna, Austria
    Web page: http://www.wu.ac.at/economics/en

    Related research

    Keywords: National Accounts; Saving Rate; Hidden Income; Shadow Economy; Corruption; Dynamic Panels;

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
    3. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages F381-89, June.
    4. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
    5. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
    6. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
    7. Milka S. Kirova & Robert E. Lipsey, 1998. "Measuring real investment: trends in the United States and international comparisons," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-18.
    8. Jeannine Bailliu & Helmut Reisen, 1998. "Do funded pensions contribute to higher aggregate savings? A cross-country analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(4), pages 692-711, December.
    9. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
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