Modelling the shadow economy of South Africa: Using the currency demand and MIMIC approach

Mangalani P.makananisa (), Cathrine T.koloane () and Friedrich Schneider ()
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Mangalani P.makananisa: South African Revenue Service, Operational Research, Pretoria, South Africa
Cathrine T.koloane: South African Revenue Service, Operational Research, Pretoria, South Africa

Journal of Economics and Political Economy, 2020, vol. 7, issue 1, 27-46

Abstract: This paper estimates the size and development of the South African shadow economy (SE) using two indirect approaches namely, the Multivariate Indicator Multivariate Causes (MIMIC) model and the Currency Demand Approach (CDA). The study uses time series from 2000 to 2019 (using quarterly data) to estimate the SE of South Africa for the period 2004 to 2018. The average estimated size of the SE from the CDA and MIMIC model are 22.47% and 25.45% respectively. Overall, the MIMIC and CDA models are both showing a slight decreasing trend for the same period. The study recommends further analysis to be conducted on economic segments in order to explore the SE activity distribution between different economic sectors; resulting in an easier way to identify, locate and monitor unrecorded businesses and also increase revenue collections and minimise non-compliance for different sectors

Keywords: Shadow Economy of South Africa; GDP; CDA; MIMIC (search for similar items in EconPapers)
JEL-codes: C32 H26 I2 O17 P48 (search for similar items in EconPapers)
Date: 2020
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