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Revealing Australia’s underground economy

Author

Listed:
  • Harb, Diab
  • Bhattacharya, Prasad S.

Abstract

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.

Suggested Citation

  • Harb, Diab & Bhattacharya, Prasad S., 2008. "Revealing Australia’s underground economy," Economics Series eco_2008_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  • Handle: RePEc:dkn:econwp:eco_2008_05
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    Cited by:

    1. Will Chancellor & Malcolm Abbott, 2015. "The Australian construction industry: is the shadow economy distorting productivity?," Construction Management and Economics, Taylor & Francis Journals, vol. 33(3), pages 176-186, March.

    More about this item

    Keywords

    Australia; Underground Economy; Currency Demand Model; Cash and Currencies; Money Supply; Taxes; Welfare Payments; Velocity of Currency.;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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