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Australia's Cash Economy: Are the estimates credible?

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Author Info
Trevor Breusch (Australian National University)

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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://129.3.20.41/eps/mac/papers/0509/0509025.pdf
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Publisher 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://129.3.20.41

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Related research
Keywords: underground economy currency demand tax evasion econometric models

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Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
  2. 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.
  3. 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. [Downloadable!] (restricted)
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Cited by:
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  1. 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. [Downloadable!]
  2. Breusch, Trevor, 2006. "Australia’s underground economy – redux?," MPRA Paper 1581, University Library of Munich, Germany. [Downloadable!]
  3. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005. [Downloadable!]
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