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THE REAL SIZE OF UNDERGROUND ECONOMY: A Case of Pakistan

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  • Ayaz KHAN*
  • Samina KHALIL**

    ()

Abstract

Informal economy is an observable issue around the globe. Researchers of both the developed and developing countries are continuously investigating its different dimensions (size, determinants, etc). The current study is an attempt to estimate the real size of informality (underground economy) in Pakistan. For its estimation the real factors of economy like employment level, political stability, tax to GDP ratio and cost of working in informal economy are used, over a period (Time series) of 1972 to 2010. HP-Prescott filter method is utilized for obtaining the potential GDP and actual GDP series from the estimated GDP which is estimated through Feasible Generalized Least Square (FGLS)1 and then from these series informal GDP is estimated. About 71 per cent of the informality was found, in the case of Pakistan economy. The finding suggests that combating informality, the factors taken must be targeted properly.

Suggested Citation

  • Ayaz KHAN* & Samina KHALIL**, 2017. "THE REAL SIZE OF UNDERGROUND ECONOMY: A Case of Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(1), pages 89-100.
  • Handle: RePEc:pje:journl:article27sumv
    as

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    File URL: http://www.aerc.edu.pk/wp-content/uploads/2017/06/Paper-701-V-AYAZ-KHAN-1.pdf
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    as
    1. Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," SBP Working Paper Series 33, State Bank of Pakistan, Research Department.
    2. Alm, James & Yunus, Mohammad, 2009. "Spatiality and Persistence in U.S. Individual Income Tax Compliance," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 101-124, March.
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