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Problems measuring the underground economy in transition1

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  • Jan Hanousek
  • Filip Palda

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 very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters 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 Czech Republic and other transition country data from the financial and electricity sectors.

Suggested Citation

  • Jan Hanousek & Filip Palda, 2006. "Problems measuring the underground economy in transition1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(4), pages 707-718, October.
    • Handle: RePEc:bla:etrans:v:14:y:2006:i:4:p:707-718
    DOI: 10.1111/j.1468-0351.2006.00268.x
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    1. Fethi Ogunc & Gokhan Yilmaz, 2000. "Estimating The Underground Economy In Turkey," Discussion Papers 0004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    Cited by:

    1. Luisanna Onnis & Patrizio Tirelli, 2011. "Institutions, policies and economic development. What are the causes of the shadow economy?," Working Papers 206, University of Milano-Bicocca, Department of Economics, revised Mar 2011.
    2. Bruno Skrinjaric & Vedran Recher & Jelena Budak, 2017. "Consumption in the Dark: Estimating Unrecorded Expenditures of Households in Croatia," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 19(2), pages 135-167, December.
    3. Peter, Klara Sabirianova, 2009. "Income Tax Flattening: Does It Help to Reduce the Shadow Economy?," IZA Discussion Papers 4223, Institute of Labor Economics (IZA).
    4. Matsaganis, Manos & Benedek, Dóra & Flevotomou, Maria & Lelkes, Orsolya & Mantovani, Daniela & Nienadowska, Sylwia, 2010. "Distributional implications of income tax evasion in Greece, Hungary and Italy," MPRA Paper 21465, University Library of Munich, Germany.
    5. Dóra Benedek & Orsolya Lelkes, 2011. "The Distributional Implications of Income Under‐Reporting in Hungary," Fiscal Studies, Institute for Fiscal Studies, vol. 32(4), pages 539-560, December.
    6. Lichard, Tomáš & Hanousek, Jan & Filer, Randall K., 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," IZA Discussion Papers 6901, Institute of Labor Economics (IZA).
    7. Adriana AnaMaria Davidescu & Eduard Mihai Manta & Adina Teodora Stoica-Ungureanu & Magdalena Anton (Musat), 2022. "Could Religiosity and Religion Influence the Tax Morale of Individuals? An Empirical Analysis Based on Variable Selection Methods," Mathematics, MDPI, vol. 10(23), pages 1-32, November.
    8. Fredström, Ashkan & Peltonen, Juhana & Wincent, Joakim, 2021. "A country-level institutional perspective on entrepreneurship productivity: The effects of informal economy and regulation," Journal of Business Venturing, Elsevier, vol. 36(5).
    9. Luisanna Onnis & Patrizio Tirelli, 2010. "Challenging the popular wisdom. New estimates of the unobserved economy," Working Papers 184, University of Milano-Bicocca, Department of Economics, revised Apr 2010.
    10. Psychoyios, Dimitrios & Missiou, Olympia & Dergiades, Theologos, 2021. "Energy based estimation of the shadow economy: The role of governance quality," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 797-808.
    11. Alexandre Couture Gagnon, 2018. "Filip Palda: In memoriam," Public Choice, Springer, vol. 174(3), pages 213-217, March.
    12. Jan Hanousek & Filip Palda, 2008. "Tax Evasion Dynamics in the Czech Republic: First Evidence of an Evasional Kuznets Curve," CERGE-EI Working Papers wp360, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    13. Byung‐Yeon Kim & Youngho Kang, 2009. "The informal economy and the growth of small enterprises in Russia1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(2), pages 351-376, April.
    14. Matsaganis, Manos & Flevotomou, Maria, 2010. "Distributional implications of tax evasion in Greece," LSE Research Online Documents on Economics 26074, London School of Economics and Political Science, LSE Library.
    15. Manos Matsaganis & Maria Flevotomou, 2010. "Distributional Implications of Tax Evasion in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 31, Hellenic Observatory, LSE.
    16. Tomáš Lichard & Jan Hanousek & Randall K. Filer, 2021. "Hidden in plain sight: using household data to measure the shadow economy," Empirical Economics, Springer, vol. 60(3), pages 1449-1476, March.

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