IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v24y2010i4p463-479.html

Evaluation of the Underground Economy in Quebec: A Microeconomic Approach

Author

Listed:
  • Bernard Fortin
  • Guy Lacroix
  • Dominique Pinard

Abstract

The main purpose of this paper is to estimate the size and the growth of Quebec's underground economy, and the corresponding loss of taxes for the government. Our approach is based on a method developed by Pissarides and Weber (1989) and extended by Lyssiotou et al. (2004). The basic hypothesis is that individuals can under-report their earnings from self-employment but not from paid work, from which taxes are directly deducted. We estimate a consumer demand system in which the marginal propensity to consume is allowed to vary with the two types of earnings. We next estimate the amount of self-employment earnings that are under-reported. From this estimate, we calculate the relative size of the underground economy in Quebec. We use data from Statistics Canada's Survey of Household Spending. According to our results, Quebec's underground economy amounted to 4.6% of GDP in 1997 and increased slightly to 5.7% in 2002. For the government, this represents approximately $3.3 billion in forgone taxes for the year 2002. This estimate is very close to those reported by Gervais (1994) and Fortin and Lacroix (2009) using very different estimation methods and data.

Suggested Citation

  • Bernard Fortin & Guy Lacroix & Dominique Pinard, 2010. "Evaluation of the Underground Economy in Quebec: A Microeconomic Approach," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 463-479.
    • Handle: RePEc:taf:intecj:v:24:y:2010:i:4:p:463-479
    DOI: 10.1080/10168737.2010.525983
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168737.2010.525983
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10168737.2010.525983?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Panayiota Lyssiotou & Panos Pashardes & Thanasis Stengos, 2004. "Estimates of the black economy based on consumer demand approaches," Economic Journal, Royal Economic Society, vol. 114(497), pages 622-640, July.
    2. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    3. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, January.
    4. Peter S. Spiro, 1996. "Monetary Estimates of the Underground Economy: A Critical Evaluation," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 171-175, April.
    5. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
    6. 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.
    7. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    8. Lewbel, Arthur, 1990. "Full Rank Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 289-300, May.
    9. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hans-Georg Petersen & Ulrich Thiessen, 2010. "Editors' Introduction: Shadow Economy in High Income Countries - Much Ado about Nothing?," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 413-419.
    2. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    3. Anna Kireenko & Yuriy Ivanov & Ekaterina Nevzorova & Olga Polyakova, 2017. "Shadow Economy in the Regions of the Russian Federation and the Ukraine," Springer Proceedings in Business and Economics, in: David Procházka (ed.), New Trends in Finance and Accounting, chapter 0, pages 301-312, Springer.
    4. Lee A. Swanson & Vincent Bruni-Bossio, 2019. "A Righteous Undocumented Economy," Journal of Business Ethics, Springer, vol. 160(1), pages 225-237, November.
    5. Claudio Quintano & Paolo Mazzocchi, 2018. "Behind the GDP: some remarks on the shadow economy in Mediterranean countries," European Journal of Law and Economics, Springer, vol. 45(1), pages 147-173, February.
    6. Odd E Nygård & Joel Slemrod & Thor O Thoresen, 2019. "Distributional Implications of Joint Tax Evasion," The Economic Journal, Royal Economic Society, vol. 129(620), pages 1894-1923.
    7. Tufan Ekici & Mustafa Besim, 2016. "A Measure of the Shadow Economy in a Small Economy: Evidence from Household-Level Expenditure Patterns," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(1), pages 145-160, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philippe Adair, 2012. "The Non-Observed Economy in the European Union Countries (EU-15): A Comparative Analysis of Estimates," Chapters, in: Michael Pickhardt & Aloys Prinz (ed.), Tax Evasion and the Shadow Economy, chapter 5, Edward Elgar Publishing.
    2. Nikolaos Artavanis & Adair Morse & Margarita Tsoutsoura, 2015. "Tax Evasion across Industries: Soft Credit Evidence from Greece," NBER Working Papers 21552, National Bureau of Economic Research, Inc.
    3. Odd E Nygård & Joel Slemrod & Thor O Thoresen, 2019. "Distributional Implications of Joint Tax Evasion," The Economic Journal, Royal Economic Society, vol. 129(620), pages 1894-1923.
    4. Olivier Bargain, 2017. "Welfare analysis and redistributive policies," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 393-419, December.
    5. Michael Pickhardt & Jordi Sardà, 2015. "Size and causes of the underground economy in Spain: a correction of the record and new evidence from the MCDR approach," European Journal of Law and Economics, Springer, vol. 39(2), pages 403-429, April.
    6. Marek Kośny & Jakub Sawulski & Aneta Kiełczewska, 2024. "Measuring the scale of envelope wages: Evidence from Poland," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 949-970, July.
    7. Serguey Braguinsky & Sergey Mityakov & Andrey Liscovich, 2014. "Direct Estimation of Hidden Earnings: Evidence from Russian Administrative Data," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 281-319.
    8. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," PSE-Ecole d'économie de Paris (Postprint) hal-01307146, HAL.
    9. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01307146, HAL.
    10. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," Post-Print hal-01307146, HAL.
    11. Fernandes, Alexandra, 2025. "The non-observed economy in the national accounts: New evidence for EU and EFTA Member States," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 137-164.
    12. Hai Zhong, 2018. "Measuring Corruption in China: An Expenditure‐based Approach Using Household Survey Data," Economica, London School of Economics and Political Science, vol. 85(338), pages 383-405, April.
    13. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2013. "A new estimation of the size of informal economy using monetary and full expenditures in a complete demand system," Post-Print halshs-00841346, HAL.
    14. Giorgio Gobbi & Roberta Zizza, 2007. "Does the Underground Economy Hold Back Financial Deepening? Evidence from the Italian Credit Market," CEP Discussion Papers dp0789, Centre for Economic Performance, LSE.
    15. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.
    16. Dóra Benedek & Orsolya Lelkes, 2011. "The Distributional Implications of Income Under‐Reporting in Hungary," Fiscal Studies, Institute for Fiscal Studies, vol. 32(4), pages 539-560, December.
    17. repec:ilo:ilowps:413498 is not listed on IDEAS
    18. Aidt, Toke & Dutta, Jayasri & Sena, Vania, 2008. "Governance regimes, corruption and growth: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 195-220, June.
    19. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    20. Chavas, Jean-Paul & Menon, Martina & Pagani, Elisa & Perali, Federico, 2018. "Collective household welfare and intra-household inequality," Theoretical Economics, Econometric Society, vol. 13(2), May.
    21. Jasna Atanasijević & Marko Danon & Zorana Lužanin & Dušan Kovačević, 2022. "Shadow Economy Estimation Using Cash Demand Approach: The Case of Serbia," Sustainability, MDPI, vol. 14(20), pages 1-19, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:24:y:2010:i:4:p:463-479. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.