Evaluation of the Underground Economy in Quebec: A Microeconomic Approach

Bernard Fortin (), Guy Lacroix and Dominique Pinard

International Economic Journal, 2010, vol. 24, issue 4, 463-479

Abstract: The main purpose of this paper is to estimate the size and the growth of Quebec's underground economy, and the corresponding loss of taxes for the government. Our approach is based on a method developed by Pissarides and Weber (1989) and extended by Lyssiotou et al. (2004). The basic hypothesis is that individuals can under-report their earnings from self-employment but not from paid work, from which taxes are directly deducted. We estimate a consumer demand system in which the marginal propensity to consume is allowed to vary with the two types of earnings. We next estimate the amount of self-employment earnings that are under-reported. From this estimate, we calculate the relative size of the underground economy in Quebec. We use data from Statistics Canada's Survey of Household Spending. According to our results, Quebec's underground economy amounted to 4.6% of GDP in 1997 and increased slightly to 5.7% in 2002. For the government, this represents approximately $3.3 billion in forgone taxes for the year 2002. This estimate is very close to those reported by Gervais (1994) and Fortin and Lacroix (2009) using very different estimation methods and data.

Keywords: Underground economy; demand system; household behaviour; generalized methods of moments; tax evasion; self-employment income (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/10168737.2010.525983 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Evaluation of the Underground Economy in Quebec: A Microeconomic Approach (2010)
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:taf:intecj:v:24:y:2010:i:4:p:463-479

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RIEJ20

DOI: 10.1080/10168737.2010.525983

Access Statistics for this article

International Economic Journal is currently edited by Jaymin Lee Editor

More articles in International Economic Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().