Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation

Randall Filer, Jan Hanousek and Tomáš Lichard

No 10483, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop an estimator of unreported income that relies on much more flexible identifying assumptions than those underlying previous estimators of the shadow economy using household-level data. Assuming only that evading households have a higher consumption-income gap than non-evaders in surveys, an endogenous switching model with unknown sample separation enables the estimation of both the probability of hiding income and the expected amount of unreported income for each household. Using data from Czech and Slovak household budget surveys, we find the size of the shadow economy to be substantially larger than estimated using other techniques. These results are robust under a number of alternative specifications.

Keywords: Consumption-income gap; Tax evasion; Underreporting (search for similar items in EconPapers)
JEL-codes: H26 J46 O17 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-iue, nep-ltv and nep-tra
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Related works:
Working Paper: Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation (2013)
Working Paper: Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation (2012)
Working Paper: Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation (2012)
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