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Underground economy estimates for non-OECD countries using currency demand method, 1984-2005

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  • Embaye, Abel

Abstract

The paper estimates the size of underground economy induced by tax evasion for cross-section of non-OECD countries using currency demand method. Unlike previous studies which usually focus only on the tax rate as the tax evasion factor, the paper presents theory consistent tax evasion estimates by augmenting the enforcements strength of the tax administration as additional determinant of the level of tax evasion. The estimation strategy includes the use of the Arellano-Bond GMM dynamic panel data method that is suitable in dealing with the issue of persistence and endogeneity problems in the estimation of currency demand equation. The study finds substantial underground economy in the non-OECD countries for the period 1984-2005 ranging from 2-69 percent of GDP.

Suggested Citation

  • Embaye, Abel, 2007. "Underground economy estimates for non-OECD countries using currency demand method, 1984-2005," MPRA Paper 20308, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20308
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    References listed on IDEAS

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    Cited by:

    1. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    2. Piotr Dybka & Bartosz Olesiński & Marek Rozkrut & Andrzej Torój, 2023. "Measuring the model uncertainty of shadow economy estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1069-1106, August.
    3. Piotr Dybka & Michał Kowalczuk & Bartosz Olesiński & Andrzej Torój & Marek Rozkrut, 2019. "Currency demand and MIMIC models: towards a structured hybrid method of measuring the shadow economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 4-40, February.
    4. Piotr Dybka & Bartosz Olesiński & Marek Rozkrut & Andrzej Torój, 2020. "Measuring the uncertainty of shadow economy estimates using Bayesian and frequentist model averaging," KAE Working Papers 2020-046, Warsaw School of Economics, Collegium of Economic Analysis.
    5. Claudio Quintano & Paolo Mazzocchi, 2010. "Some Alternative Estimates of Underground Economies in 12 New EU Member States," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 611-628.

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    More about this item

    Keywords

    Tax evasion; underground economy; currency demand; enforcement; non-OECD; Dynamic Panel Data;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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