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Nonparametric expenditure-based estimation of income under-reporting and the underground economy

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  • Lindsay M. Tedds

Abstract

There is considerable interest in measuring the underground economy using microeconomic data. One such method estimates income under-reporting by households by assuming a known, parametric form of the Engel curve and making the further parametric assumption that households under-report their income by a constant fraction, independent of income. This paper proposes a nonparametric approach which avoids functional form restrictions and enables the reporting function to vary across income levels and household characteristics. I illustrate by estimating the effect of the Canadian Goods and Services Tax on income under-reporting.

Suggested Citation

  • Lindsay M. Tedds, 2004. "Nonparametric expenditure-based estimation of income under-reporting and the underground economy," Department of Economics Working Papers 2004-17, McMaster University.
    • Handle: RePEc:mcm:deptwp:2004-17
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2004-17.pdf
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    Citations

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    Cited by:

    1. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
    2. Engström, Per & Hesselius, Patrik, 2007. "The information method - theory and application," Working Paper Series 2007:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    3. Knut R. Wangen, 2005. "An Expenditure Based Estimate of Britain's Black Economy Revisited," Discussion Papers 414, Statistics Norway, Research Department.
    4. Tonin, Mirco, 2011. "Minimum wage and tax evasion: Theory and evidence," Journal of Public Economics, Elsevier, vol. 95(11), pages 1635-1651.
    5. Karine Torosyan & Randall K. Filer, 2014. "Tax reform in Georgia and the size of the shadow economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 179-210, January.
    6. Lindsay M. Tedds, 2005. "Keeping It Off The Books: An Empirical Investigation Into the Characteristics of Firms That Engage In Tax Non-Compliance," Department of Economics Working Papers 2005-01, McMaster University.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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