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Estimating the size of Turkey's informal sector: an expenditure-based approach

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  • Nurhan Davutyan

Abstract

Accurately measuring Turkey's informal sector is important for policymaking. We utilize household income-expenditure surveys to examine this sector's income underreporting. The Pissarides-Weber approach hypothesizes that data would reflect such underreporting as “excess food consumption”. Our results suggest informal sector members spend more than their formal sector counterparts with comparable reported income levels. Using this information, we estimate the average size of the true informal sector to be about 1.25 times the official estimate. The informal sector accounts for around 83% of officially reported disposable income. Therefore, true Turkish disposable income is (25%)*(83%), roughly 21% larger than the officially estimated magnitude.

Suggested Citation

  • Nurhan Davutyan, 2008. "Estimating the size of Turkey's informal sector: an expenditure-based approach," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 11(4), pages 261-271.
  • Handle: RePEc:taf:jpolrf:v:11:y:2008:i:4:p:261-271 DOI: 10.1080/17487870802598393
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    References listed on IDEAS

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    1. Fethi Ogunc & Gokhan Yilmaz, 2000. "Estimating The Underground Economy In Turkey," Discussion Papers 0004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
    3. André Sapir, 2006. "Globalization and the Reform of European Social Models," Journal of Common Market Studies, Wiley Blackwell, vol. 44(2), pages 369-390, June.
    4. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, pages 17-32.
    5. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, pages 77-114.
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    Cited by:

    1. Roberto Dell'Anno & Ferda Halicioglu, 2010. "An ARDL model of unrecorded and recorded economies in Turkey," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 627-646, November.
    2. Ozan Bakis & Nurhan Davutyan & Haluk Levent & Sezgin Polat, 2010. "External Returns to Higher Education in Turkey," Working Papers 517, Economic Research Forum, revised 04 Jan 2010.
    3. Lois Stevenson, 2010. "Private Sector and Enterprise Development," Books, Edward Elgar Publishing, number 14047, September.
    4. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    5. 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," Documents de travail du Centre d'Economie de la Sorbonne 13053, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    6. 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.
    7. repec:dau:papers:123456789/5838 is not listed on IDEAS

    More about this item

    Keywords

    informal economy; tax evasion; Engel's Law;

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