Estimating the underground economy by using MIMIC models: A response to T. Breusch´s critique
Breusch (2005b) critically addresses an important and challenging question: Is it reliable to use the Multiple Indicators Multiple Causes model to estimate Shadow Economy? Breusch concludes that this approach is not suitable for the purpose. Breusch’s paper highlights the different procedures and hypotheses about the estimation of the size and development of the shadow economy in three papers: Giles and Tedds (2002a), Dell’Anno and Schneider (2003) and Bajada and Schneider (2005). In this paper, we will react and provide some answers to Breusch’s criticisms with special reference to the criticisms of the Dell’Anno and Schneider (2003) paper. According with us, the MIMIC model is still one of the best approaches to this purpose.
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- Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, vol. 32(4), pages 965-976, April.
- Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
- Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005.
- Dell'Anno, Roberto, "undated". "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Economics Working Papers 2003-7, Department of Economics and Business Economics, Aarhus University.