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Measuring The Hidden Economy: Implications for Econometric Modelling

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Abstract

In this paper I support using econometric techniques to measure the size of the hidden (underground) economy, because such information is important for the construction of certain economic models, and for empirical policy analysis. Generally, detailed information on the output of the hidden economy is unavailable. Even where careful measures of the underground economy have been constructed, usually these data are available only periodically. Important exceptions are the classic results of Tanzi (1983) for the United States, and Bhattacharyya's (1990) series for the United Kingdom. In the case of the New Zealand economy, a time-series of data on the hidden economy has been generated recently (Giles, 1997a). This provides the unusual opportunity to undertake econometric modelling in a way which takes account of such activity formally. Moreover, we can examine the policy implications arising from the linkages between hidden output and various measured economic aggregates.

Suggested Citation

  • David E. A. Giles, 1998. "Measuring The Hidden Economy: Implications for Econometric Modelling," Econometrics Working Papers 9809, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicewp:9809
    Note: ISSN 1485-6441
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    Keywords

    Hidden Economy; Underground Economy; Demand for Money;

    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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