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Modelling the Underground Economies in Canada and New Zealand: A Comparative Analysis

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  • Lindsay M. Tedds
  • David E. A. Giles

Abstract

Recently there has been a resurgence of interest internationally in measuring the size of the underground economies. This has led to new approaches to this problem, and a more rigorous treatment of the associated time-series issues. In this paper we compare our recent underground economy results for Canada and New Zealand. These results provide time-series measures of the (legally-based plus illegally-based) underground economies in those countries, over similar historical periods, obtained via the same methodology. This methodology involves the estimation of structural MIMIC models, calibrated by estimating nonlinear currency-demand models. In addition to providing the underground economy measures themselves, we also compare the medium-term trends and cyclical characteristics of underground output in these two countries, and their responsiveness to changes in taxation policies. Special attention is paid to the effects on the New Zealand and Canadian underground economies of the Goods and Services Taxes in 1986 and 1991 respectively. These taxes are virtually identical in their design, but the context of their implementation led to quite different impacts on the associated underground economies.

Suggested Citation

  • Lindsay M. Tedds & David E. A. Giles, 2000. "Modelling the Underground Economies in Canada and New Zealand: A Comparative Analysis," Econometrics Working Papers 0003, Department of Economics, University of Victoria.
    • Handle: RePEc:vic:vicewp:0003
    Note: ISSN 1485-6441
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    References listed on IDEAS

    as
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    Cited by:

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    2. Davidescu, Adriana Anamaria & Schneider, Friedrich, 2017. "Nature of the Relationship between Minimum Wage and the Shadow Economy Size: An Empirical Analysis for the Case of Romania," IZA Discussion Papers 11247, Institute of Labor Economics (IZA).
    3. Kose, M. Ayhan & Elgin, Ceyhun & Ohnsorge, Franziska & Yu, Shu, 2021. "Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles," CEPR Discussion Papers 16498, C.E.P.R. Discussion Papers.
    4. Unger Brigitte, 2009. "Money Laundering - A Newly Emerging Topic on the International Agenda," Review of Law & Economics, De Gruyter, vol. 5(2), pages 807-819, December.
    5. Ceyhun Elgin & M. ayhan Köse & Franziska Ohnsorge & Shu Yu, 2021. "Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles Abstract:," Working Papers 2021/04, Bogazici University, Department of Economics.
    6. Michael Pickhardt & Jordi Sarda Pons, 2006. "Size and scope of the underground economy in Germany," Applied Economics, Taylor & Francis Journals, vol. 38(14), pages 1707-1713.
    7. Nikopour, Hesam, 2003. "Measuring the size of underground economy in Iran with emphasis on the incentives for evasion of insurance premium payment (1961 – 2001)," MPRA Paper 13176, University Library of Munich, Germany, revised 05 Feb 2009.
    8. Corina - Maria Ene & Andrei Ştefănescu, 2011. "Size And Implication Of Underground Economy In Romania - A Mimic Approach," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(13), pages 1-8.

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    More about this item

    Keywords

    underground economy; tax evasion; MIMIC models; goods and services tax;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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