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Business Cycle Properties of the Legitimate and Underground Economy in Australia

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  • Christopher Bajada

Abstract

The business cycle characteristics of the legitimate economy have been examined quite extensively. In this paper we extend the standard business cycle analysis to the underground economy and compare it to the legitimate economy. Using National Bureau of Economic Research dating methodologies we find that classical cycles exhibit strong incidence of asymmetry while growth cycles appear relatively symmetric. We find that changes in legitimate activity lead to changes in underground activity but that the underground economy responds more to negative shocks in legitimate activity than to positive shocks. This implies that the underground economy is deepening economic downturns and increasing the volatility of the business cycle in general. Copyright 2003. The Economic Society of Australia.

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  • 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.
  • Handle: RePEc:bla:ecorec:v:79:y:2003:i:247:p:397-411
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    References listed on IDEAS

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    Cited by:

    1. Catalina Granda-Carvajal, 2012. "Macroeconomic Implications of the Underground Sector: Challenging the Double Business Cycle Approach," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 237-256, September.
    2. Filer, Randall K. & Hanousek, Jan & Lichard, Tomáš & Torosyan, Karine, 2016. ""Flattening" the Tax Evasion: Evidence from the Post-Communist Natural Experiment," CEPR Discussion Papers 11229, C.E.P.R. Discussion Papers.
    3. Sanidas, Elias, 2005. "The Australian Dollar's Long-Term Fluctuations and Trend: The Commodity Prices-cum-Economic Cycles Hypothesis," Economics Working Papers wp05-29, School of Economics, University of Wollongong, NSW, Australia.
    4. Narayan, Paresh Kumar, 2008. "An investigation of the behaviour of Australia's business cycle," Economic Modelling, Elsevier, vol. 25(4), pages 676-683, July.
    5. repec:eee:quaeco:v:65:y:2017:i:c:p:61-70 is not listed on IDEAS
    6. Catalina Granda-Carvajal, 2010. "The Unofficial Economy and the Business Cycle: A Test for Theories," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 573-586.
    7. Slim, Sadri, 2015. "Un modelo Mundell-Fleming con economía ilegal y lavado de dinero
      [Modeling illegal economy and money laundering: a Mundell-Fleming framework]
      ," MPRA Paper 64675, University Library of Munich, Germany.
    8. Gemmell, Norman & Hasseldine, John, 2012. "The Tax Gap: A Methodological Review," Working Paper Series 2435, Victoria University of Wellington, Chair in Public Finance.
    9. Giuseppe Ciccarone & Francesco Giuli, 2012. "Underground labor, search frictions and macroeconomic fluctuations," Departmental Working Papers of Economics - University 'Roma Tre' 0159, Department of Economics - University Roma Tre.
    10. Christopher Bajada, 2005. "Unemployment and the underground economy in Australia," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 177-189.
    11. Breusch, Trevor, 2006. "Australia’s underground economy – redux?," MPRA Paper 9980, University Library of Munich, Germany.
    12. Trevor Breusch, 2005. "Australia's Cash Economy: Are the estimates credible?," Macroeconomics 0509025, EconWPA, revised 23 Sep 2005.
    13. Trevor Breusch, 2005. "Australia's Cash Economy: Are the Estimates Credible?," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 394-403, December.
    14. Kafkalas, Sifis & Kalaitzidakis, Pantelis & Tzouvelekas, Vangelis, 2014. "Tax evasion and public expenditures on tax revenue services in an endogenous growth model," European Economic Review, Elsevier, vol. 70(C), pages 438-453.
    15. Giuseppe Ciccarone & Francesco Giuli & Enrico Marchetti, 2016. "Search frictions and labor market dynamics in a real business cycle model with undeclared work," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 409-442, August.
    16. Colombo, Emilio & Onnis, Luisanna & Tirelli, Patrizio, 2016. "Shadow economies at times of banking crises: Empirics and theory," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 180-190.
    17. Sifis Kafkalas & Pantelis Kalaitzidakis & Vangelis Tzouvelekas, 2012. "Tax Evasion and Public Expenditures on Tax Collection Services in an Endogenous Growth Model," Working Papers 1202, University of Crete, Department of Economics.
    18. Ratbek Dzhumashev & Emin Gahramanov, 2010. "A Growth Model with Income Tax Evasion: Some Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 620-636, December.
    19. Christopher Bajada & Friedrich Schneider, 2009. "Unemployment and the Shadow Economy in the oecd," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1033-1067.

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