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

  • Jan Hanousek

    (Center for Economic Research & Graduate Education)

  • Filip Palda

    (École nationale d'administration publique)

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.

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File URL: http://econwpa.repec.org/eps/pe/papers/0404/0404002.pdf
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Paper provided by EconWPA in its series Public Economics with number 0404002.

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Length: 26 pages
Date of creation: 06 Apr 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0404002
Note: Type of Document - pdf; pages: 26. PDF file can be read or downloaded
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  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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