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Mission Implausible II: Measuring the Informal Sector in a Transition Economy Using Macro Methods

Author

Listed:
  • Jan Hanousek

    (Center for Economic Research & Graduate Education)

  • Filip Palda

    (École nationale d'administration publique)

Abstract

An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.

Suggested Citation

  • Jan Hanousek & Filip Palda, 2004. "Mission Implausible II: Measuring the Informal Sector in a Transition Economy Using Macro Methods," Public Economics 0404002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0404002
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    References listed on IDEAS

    as
    1. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    2. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
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    Cited by:

    1. Stanisław Cichocki, 2008. "Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007," Working Papers 2008-05, Faculty of Economic Sciences, University of Warsaw.
    2. Sergei Guriev & Andrei Rachinsky, 2006. "The Evolution of Personal Wealth in the Former Soviet Union and Central and Eastern Europe," WIDER Working Paper Series RP2006-120, World Institute for Development Economic Research (UNU-WIDER).
    3. Gérard Duchêne & Ramona Jimborean & Boris Najman, 2006. "Structure of Monetary Assets in Transition Economies: Financial Innovation and Structural Transformation," Post-Print hal-00270544, HAL.
    4. Chiumya, Chiza, 2007. "The Parallel Economy in Malawi: Size, Effect on Tax Revenue and Policy Options," MPRA Paper 9860, University Library of Munich, Germany.

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    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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