Hidden in plain sight: using household data to measure the shadow economy

Tomáš Lichard, Jan Hanousek and Randall Filer

Empirical Economics, 2021, vol. 60, issue 3, No 14, 1449-1476

Abstract: Abstract We develop an estimator of unreported income that relies on more flexible identifying assumptions than those that have been used previously. Assuming only that evaders have a higher consumption–income gap than non-evaders in surveys, our model enables the estimation of both the probability of hiding income and the amount of unreported income for each household. We illustrate the method using Czech and Slovak household budget surveys. Our results are robust to alternative specifications. Furthermore, we show that since the underreported share decreases with reported income, income inequality in these countries may be lower than suggested by the reported income.

Keywords: Tax evasion; Income underreporting; Consumption–income gap; Income inequality (search for similar items in EconPapers)
JEL-codes: C34 E26 H26 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s00181-019-01797-z

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