Modelling the Hidden Economy and the Tax-Gap in New Zealand
This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and diagnostic testing. The size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country, though of course not all of this foregone revenue would be recoverable.
|Date of creation:||02 Nov 1998|
|Date of revision:|
|Note:||ISSN 1485-6441. An earlier version of this paper was released as University of Victoria Department of Economics Discussion Paper 97-8, April 1997. The final version of this paper is available as vicewp:9905.|
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Web page: http://web.uvic.ca/econ
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