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Business Cycle Properties of the Legitimate and Underground Economy in Australia

  • Christopher Bajada

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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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 79 (2003)
Issue (Month): 247 (December)
Pages: 397-411

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Handle: RePEc:bla:ecorec:v:79:y:2003:i:247:p:397-411
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  1. Sichel, D.E., 1988. "Business Cycle Asymmetry: A Deeper Look," Papers 85, Princeton, Department of Economics - Financial Research Center.
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  14. 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.
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