Using Panel Data to Exactly Estimate Under-Reporting by the Self-Employed

John Gibson (), Bonggeun Kim and Chul Chung
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Bonggeun Kim: Sungkyunkwan University and University of Waikato
Chul Chung: Korea Institute for International Economic Policy

Working Papers in Economics from University of Waikato, Department of Economics

Abstract: The income of the self-employed is often assumed to be understated in economic statistics. Debate exists about the extent of under-reporting and the resulting measures of the size of the underground economy. This paper refines a method developed by Pissarides and Weber (1989) and uses discrepancies between food shares and reported incomes to estimate under-reporting by the self-employed. In contrast to previous studies our panel data methodology distinguishes income under-reporting from transitory income fluctuations of the self-employed, and provides an exact estimate of the degree of under-reporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of self-employed households in Korea and 47 percent of the income of Russian self-employed households is not reported.

Keywords: Engle curve; measurement error; self-employment; underground economy (search for similar items in EconPapers)
JEL-codes: D12 H26 H31 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent
Date: 2008-10-06
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