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Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed

Author

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  • Bonggeun Kim

    (Korean Institute for International Economic Policy)

  • John Gibson
  • Chul Chung

Abstract

The income of the self-employed is often assumed to be understated in economic statistics. Controversy exists about the best method for estimating the extent of under-reporting and about the resulting measures of the size of the underground economy. This paper refines a method developed by Pissarides and Weber (1989) and uses discrepancies between food shares and reported incomes of the self-employed and other households to estimate under-reporting by the self-employed. In contrast to previous studies our panel data methodology distinguishes income under-reporting from transitory income fluctuations of the self employed, and provides an exact estimate of the degree of under reporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of self employed households in Korea and 47 percent of the income of Russian self-employed households is not reported.

Suggested Citation

  • Bonggeun Kim & John Gibson & Chul Chung, 2009. "Using Panel Data to Exactly Estimate Income Under-Reporting by the Self Employed," Labor Economics Working Papers 22996, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:laborw:22996
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    References listed on IDEAS

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    1. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
    2. 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.
    3. Timothy K.M. Beatty & Erling Røed Larsen, 2005. "Using Engel curves to estimate bias in the Canadian CPI as a cost of living index," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 482-499, May.
    4. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    5. Gibson, John & Stillman, Steven & Le, Trinh, 2008. "CPI bias and real living standards in Russia during the transition," Journal of Development Economics, Elsevier, vol. 87(1), pages 140-160, August.
    6. Herb J. Schuetze, 2002. "Profiles of Tax Non-compliance Among the Self-Employed in Canada: 1969 to 1992," Canadian Public Policy, University of Toronto Press, vol. 28(2), pages 219-237, June.
    7. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages 381-389, June.
    8. Dora L. Costa, 2001. "Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1288-1310, December.
    9. Edvard Johansson, 2005. "An estimate of self-employment income underreporting in Finland," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 99-109.
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    Citations

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    Cited by:

    1. 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.
    2. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
    3. repec:hal:spmain:info:hdl:2441/2hpm2pgsb78r2a2lh6ahev49mj is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/2hpm2pgsb78r2a2lh6ahev49mj is not listed on IDEAS
    5. Engström, Per & Hagen, Johannes, 2017. "Income underreporting among the self-employed: A permanent income approach," European Economic Review, Elsevier, vol. 92(C), pages 92-109.
    6. Merike Kukk & Karsten Staehr, 2014. "Identification of Income Underreporting by the Self-Employed: Employment Status or Reported Business Income?," TUT Economic Research Series 8, Department of Finance and Economics, Tallinn University of Technology.
    7. Zs fia L. B r ny, 2017. "Taxation and self-employment," LIS Working papers 723, LIS Cross-National Data Center in Luxembourg.
    8. Merike Kukk & Karsten Staehr, 2014. "Income underreporting by households with business income: evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 257-276, June.
    9. Paulus, Alari, 2015. "Income underreporting based on income-expenditure gaps: survey vs tax records," ISER Working Paper Series 2015-15, Institute for Social and Economic Research.

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    More about this item

    Keywords

    Engel curve; Measurement error; Self-employment; Underground economy;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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