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Revealing Australia’s Underground Economy

This study, using currency demand model, finds Australia’s underground economy to be around 2 to 3 per cent of gross domestic product. We extend the related literature (see, inter alia, Bajada, 1999 and Breusch, 2005) in three novel ways. First, we use Austrian levels of taxes and welfare payments as the minimum levels of taxes and welfare payments. Secondly, we employ the currency demand measurement as in Cagan (1958), i.e., cash and currencies as a proportion of total money supply. Third, we use Cagan’s original assumption regarding equalities of velocities of currencies in both the legal and illegal economies in order to estimate the underground economy.

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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2008_05.

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Length: 33 pages
Date of creation: 14 Oct 2008
Date of revision:
Handle: RePEc:dkn:econwp:eco_2008_05
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