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Australia's Cash Economy: Are the estimates credible?

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  • Trevor Breusch

    (Australian National University)

Abstract

The method of "excess sensitivity" of Bajada (1999, 2001, 2002) indicates a large underground economy in Australia, with estimates of unrecorded income around 15 per cent of official GDP. These estimates concern policymakers, especially those agencies responsible for national accounts, tax collection, economic stabilization and law enforcement. We show that the method exhibits a severe form of non-robustness, in which the results change markedly with a simple change in the units of measurement of the variables. There is a separate problem in which a key parameter is set to an unrealistic value that makes the estimates many times too high.

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File URL: http://128.118.178.162/eps/mac/papers/0509/0509025.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0509025.

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Length: 19 pages
Date of creation: 23 Sep 2005
Date of revision: 23 Sep 2005
Handle: RePEc:wpa:wuwpma:0509025

Note: Type of Document - pdf; pages: 19
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Web page: http://128.118.178.162

Related research

Keywords: underground economy; currency demand; tax evasion; econometric models;

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References

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  1. Bajada, Christopher, 1999. "Estimates of the Underground Economy in Australia," The Economic Record, The Economic Society of Australia, vol. 75(231), pages 369-84, December.
  2. Christopher Bajada, 2003. "Business Cycle Properties of the Legitimate and Underground Economy in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 397-411, December.
  3. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  4. Rolf Mirus & Roger S. Smith & Vladimir Karoleff, 1994. "Canada's Underground Economy Revisited: Update and Critique," Canadian Public Policy, University of Toronto Press, vol. 20(3), pages 235-252, September.
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Cited by:
  1. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo J., 2006. "The Demand for Currency Approach and the Size of the Shadow Economy: A Critical Assessment," Berkeley Olin Program in Law & Economics, Working Paper Series qt6zn9p98b, Berkeley Olin Program in Law & Economics.
  2. Pickhardt, Michael & Sardà Pons, Jordi, 2010. "The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-deposit-Ratio approach," Working Papers 2072/148479, Universitat Rovira i Virgili, Department of Economics.
  3. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005.
  4. Gemmell, Norman & Hasseldine, John, 2012. "The Tax Gap: A Methodological Review," Working Paper Series 2435, Victoria University of Wellington, Chair in Public Finance.
  5. Diab Harb & Prasad S. Bhattacharya, 2008. "Revealing Australia’s Underground Economy," Economics Series 2008_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  6. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo, 2008. "The monetary method to measure the shadow economy: The forgotten problem of the initial conditions," Economics Letters, Elsevier, vol. 101(2), pages 97-99, November.
  7. Tran-Nam, Binh & Vu, Linh & Andrew, Brian, 2007. "Personal Income Tax Reform in Australia: A Specific Proposal," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 37(2), pages 163-186, September.
  8. Luisanna Onnis & Patrizio Tirelli, 2011. "Institutions, policies and economic development. What are the causes of the shadow economy?," Working Papers 206, University of Milano-Bicocca, Department of Economics, revised Mar 2011.

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