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The Hidden Economy and the Tax-Gap in New Zealand: A Latent Variable Analysis

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Abstract

This paper develops a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. The hidden economy varies between 6.8% and 11.3% of measured GDP. This, in turn, implies that the tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country.

Suggested Citation

  • David E. A. Giles, 1998. "The Hidden Economy and the Tax-Gap in New Zealand: A Latent Variable Analysis," Econometrics Working Papers 9807, Department of Economics, University of Victoria.
    • Handle: RePEc:vic:vicewp:9807
    Note: ISSN 1485-6441. This paper was also released as UVic Discussion Paper 97-08 in April 1997, and a longer preliminary version was released as N.Z. Inland Revenue Department Working Paper 5a, November/December 1996. The final version of this paper is now available as vicewp:9905.
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    Cited by:

    1. David E.A. Giles, 1998. "The Underground Economy: Minimizing the Size of Government," Department Discussion Papers 9801, Department of Economics, University of Victoria.
    2. Tedds, Lindsay, 2005. "The Underground Economy in Canada," MPRA Paper 4229, University Library of Munich, Germany.

    More about this item

    Keywords

    Hidden Economy; Underground Economy; Tax Avoidance; Tax Evasion; Latent Variables; Structural Modelling;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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