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Australia's Cash Economy: Are the Estimates Credible?

  • TREVOR BREUSCH

The method of 'excess sensitivity' of Bajada (1999, 2000, 2001) indicates a large underground economy in Australia, with estimates of unrecorded income approximately 15 per cent of official gross domestic product. These estimates concern policy-makers, especially those agencies responsible for national accounts, tax collection, economic stabilisation 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. Copyright 2005 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): 81 (2005)
Issue (Month): 255 (December)
Pages: 394-403

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Handle: RePEc:bla:ecorec:v:81:y:2005:i:255:p:394-403
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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(4), pages 423-39.
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