Revealing Australia’s underground economy

Diab Harb and Prasad Bhattacharya

Working Papers from Deakin University, Department of Economics

Abstract: This study, using currency demand model, finds Australia’s underground economy to be around 2 to 3 per cent of gross domestic product. We extend the related literature (see, inter alia, Bajada, 1999 and Breusch, 2005) in three novel ways. First, we use Austrian levels of taxes and welfare payments as the minimum levels of taxes and welfare payments. Secondly, we employ the currency demand measurement as in Cagan (1958), i.e., cash and currencies as a proportion of total money supply. Third, we use Cagan’s original assumption regarding equalities of velocities of currencies in both the legal and illegal economies in order to estimate the underground economy.

Keywords: Australia; Underground Economy; Currency Demand Model; Cash and Currencies; Money Supply; Taxes; Welfare Payments; Velocity of Currency. (search for similar items in EconPapers)
JEL-codes: E26 E41 E51 E62 (search for similar items in EconPapers)
Date: 2008-10-14
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:dkn:econwp:eco_2008_05

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