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

Author

Listed:
  • Bonggeun Kim

    (Hanyang University - Economics)

  • John Gibson

    (University of Waikato; Motu Economic and Public Policy Research)

  • Chul Chung

    (Korea Institute for International Economic Policy)

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 selfemployed, and provides an exact estimate of the degree of underreporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of selfemployed 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," Working Papers 09-2, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2009_002
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    Citations

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    Cited by:

    1. Zsófia L. Bárány, 2017. "Taxation and self-employment," LIS Working papers 723, LIS Cross-National Data Center in Luxembourg.
    2. 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.
    3. repec:spo:wpecon:info:hdl:2441/2hpm2pgsb78r2a2lh6ahev49mj is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/2hpm2pgsb78r2a2lh6ahev49mj is not listed on IDEAS
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.

    More about this item

    Keywords

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    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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