Australia's Cash Economy: Are the estimates credible?

Trevor Breusch ()

Macroeconomics from EconWPA

Abstract: The method of "excess sensitivity" of Bajada (1999, 2001, 2002) indicates a large underground economy in Australia, with estimates of unrecorded income around 15 per cent of official GDP. These estimates concern policymakers, especially those agencies responsible for national accounts, tax collection, economic stabilization and law enforcement. We show that the method exhibits a severe form of non-robustness, in which the results change markedly with a simple change in the units of measurement of the variables. There is a separate problem in which a key parameter is set to an unrealistic value that makes the estimates many times too high.

Keywords: underground economy; currency demand; tax evasion; econometric models (search for similar items in EconPapers)
JEL-codes: C51 E42 E62 H26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-pbe
Date: 2005-09-23, Revised 2005-09-23
Note: Type of Document - pdf; pages: 19
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0509025

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