Modelling the hidden economy and the tax-gap in New Zealand

David Giles

Empirical Economics, 1999, vol. 24, issue 4, 640 pages

Abstract: This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated 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. Special attention is paid to data non-stationarity, and to diagnostic testing. Over the period 1968 to 1994, the size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country. Of course, not all of this foregone revenue would be recoverable, as not all of the activity in the underground economy is responsive to changes in taxation or other policies.

Keywords: Underground economy; latent variables; tax avoidance; tax evasion; tax-gap (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 E41 (search for similar items in EconPapers)
Date: 1999-11-24
Note: received: August 1997/Final version received: March 1999
References: Add references at CitEc
Citations: View citations in EconPapers (113)

Downloads: (external link)
http://link.springer.de/link/service/journals/00181/papers/9024004/90240621.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:24:y:1999:i:4:p:621-640

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().