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Estimating The Size of Turkey’s Informal Sector: An Expenditure Based Approach

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  • Nurhan Davutyan

    (Dept. of Economics & Dept. of Industrial Engineering, Marmara University)

Abstract

How extensive is the Turkish unofficial economy? An accurate answer to this question has considerable practical significance for various aspects of economic policy – particularly employment, fiscal and migration policies. Estimates based on macroeconomic data tend to be too imprecise. We utilize the most up to date household income and expenditure surveys to examine the extent of income underreporting among members of Turkey’s unofficial economy. The Pissarides-Weber (1989) approach that we use, hypothesizes that survey data would reflect income underreporting in the informal sector as “excess food consumption.” Since it relies on “marginal propensity to consume food”, this method allows comparisons across time and space, via Engel’s Law. Our results suggest that informal sector members spend more than their formal sector counterparts with the same level of reported income. Based on this information, we estimate the average size of the true informal sector income to be about 1.25 times the reported one. This implies the Turkish disposable income is (25%)*(83%) or about 21% larger than the official estimate based on reported magnitudes.

Suggested Citation

  • Nurhan Davutyan, 2008. "Estimating The Size of Turkey’s Informal Sector: An Expenditure Based Approach," Working Papers 403, Economic Research Forum, revised 03 Jan 2008.
    • Handle: RePEc:erg:wpaper:403
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    References listed on IDEAS

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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.
    2. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    3. André Sapir, 2006. "Globalization and the Reform of European Social Models," Journal of Common Market Studies, Wiley Blackwell, vol. 44(2), pages 369-390, June.
    4. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
    5. 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.
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    Cited by:

    1. Roberto Dell'Anno & Ferda Halicioglu, 2010. "An ARDL model of unrecorded and recorded economies in Turkey," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(6), pages 627-646, November.
    2. Ozan Bakis & Nurhan Davutyan & Haluk Levent & Sezgin Polat, 2010. "External Returns to Higher Education in Turkey," Working Papers 517, Economic Research Forum, revised 04 Jan 2010.
    3. Lois Stevenson, 2010. "Private Sector and Enterprise Development," Books, Edward Elgar Publishing, number 14047.
    4. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    5. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," PSE-Ecole d'économie de Paris (Postprint) hal-01307146, HAL.
    6. Hai Anh La & Duc Anh Dang, 2018. "Income under-reporting and tax evasion: How they impact inequality in Vietnam," WIDER Working Paper Series 148, World Institute for Development Economic Research (UNU-WIDER).
    7. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01307146, HAL.
    8. Dina Bishara, 2023. "Introduction to a Special Issue on Labor in the Middle East and North Africa: Precarity, Inequality, and Migration," ILR Review, Cornell University, ILR School, vol. 76(4), pages 627-645, August.
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    10. Hai Anh La & Duc Anh Dang, 2018. "Income under-reporting and tax evasion: How they impact inequality in Vietnam," WIDER Working Paper Series wp-2018-148, World Institute for Development Economic Research (UNU-WIDER).
    11. Altındağ, Onur & Bakış, Ozan & Rozo, Sandra V., 2020. "Blessing or burden? Impacts of refugees on businesses and the informal economy," Journal of Development Economics, Elsevier, vol. 146(C).
    12. Bjørkheim, Julie Brun & Nygård, Odd E., 2024. "Gender Differences in Tax Evasion: Evidence from Norwegian Administrative Data," Discussion Papers 2024/8, Norwegian School of Economics, Department of Business and Management Science.
    13. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2014. "A New Estimation Of The Size Of Informal Economy Using Monetary And Full Expenditures In A Complete Demand System [Une évaluation de la taille de l'économie informelle par un système complet de dem," Post-Print hal-01307146, HAL.

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