Evaluation of the Underground Economy in Quebec: A Microeconomic Approach
Bernard Fortin (),
Guy Lacroix () and
International Economic Journal, 2010, vol. 24, issue 4, 463-479
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)
References: Add references at CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
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)
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
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
Series data maintained by Chris Longhurst ().