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Estimating the underground economy by using MIMIC models: A response to T. Breusch´s critique

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Abstract

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.

Suggested Citation

  • Roberto Dell’Anno & Friedrich G. Schneider, 2006. "Estimating the underground economy by using MIMIC models: A response to T. Breusch´s critique," Economics working papers 2006-07, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2006_07
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    File URL: http://www.econ.jku.at/papers/2006/wp0607.pdf
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    1. 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.
    2. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
    3. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 15 Dec 2005.
    4. 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.
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    Cited by:

    1. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    2. José Brambila Macias & Guido Cazzavillan, 2010. "Modeling the informal economy in Mexico:a structural equation approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 345-365, September.
    3. Friedrich Schneider, 2006. "Shadow Economies and Corruption all over the World: What do we really Know?," CESifo Working Paper Series 1806, CESifo Group Munich.
    4. Felix Schmutz, 2016. "Measuring the Invisible: An Overview of and Outlook for Tax Non-Compliance Estimates and Measurement Methods for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 152(II), pages 125-177, June.
    5. Ceyhun Elgin & Friedrich Schneider, 2016. "Shadow Economies in OECD Countries: DGE vs. MIMIC Approaches," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 30(1), pages 51-75.
    6. Dasgupta, Manjira, 2017. "Moving towards "Cashlessness" in an emerging economy: A case study of latest policy steps in India," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162907, Deutsche Bundesbank.
    7. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters,in: Handbook on the Shadow Economy, chapter 1 Edward Elgar Publishing.
    8. Feige, Edgar L., 2016. "Professor Schneider's Shadow Economy:What do we really know? A Rejoinder," MPRA Paper 71903, University Library of Munich, Germany.
    9. repec:kap:ejlwec:v:45:y:2018:i:1:d:10.1007_s10657-014-9434-3 is not listed on IDEAS
    10. Halla Martin, 2012. "Tax Morale and Compliance Behavior: First Evidence on a Causal Link," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-27, April.
    11. repec:spr:sjecst:v:152:y:2016:i:2:d:10.1007_bf03399425 is not listed on IDEAS
    12. Vjekoslav Klaric, 2011. "Estimating the size of non-observed economy in Croatia using the MIMIC approach," Financial Theory and Practice, Institute of Public Finance, vol. 35(1), pages 59-90.
    13. Gebhard Kirchgässner, 2011. "Tax Morale, Tax Evasion and the Shadow Economy," Chapters,in: Handbook on the Shadow Economy, chapter 10 Edward Elgar Publishing.
    14. repec:pkk:sfyr17:20-34 is not listed on IDEAS
    15. Helmut Herwartz & Friedrich Schneider & Egle Tafenau, 2011. "Regional Patterns of the Shadow Economy: Modelling Issues and Evidence from the European Union," Chapters,in: Handbook on the Shadow Economy, chapter 6 Edward Elgar Publishing.
    16. Suslov, N. & Mel'tenisova, E., 2015. "Analysis of Energy Price's Impact on Shadow Economies Around the World," Journal of the New Economic Association, New Economic Association, vol. 27(3), pages 12-43.
    17. Bourhaba Othmane & Hamimida Mama, 2016. "An Estimation of the Informal Economy in Morocco," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(9), pages 140-147, September.

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    Keywords

    shadow economy; MIMIC model; structural modelling.;

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