Modelling the Hidden Economy and the Tax-Gap in New Zealand

David Giles

No 9905, Econometrics Working Papers from Department of Economics, University of Victoria

Abstract: This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and diagnostic testing. The size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country, though of course not all of this foregone revenue would be recoverable.

Keywords: Hidden Economy; Underground Economy; Tax Avoidance; Tax Evasion; Tax-Gap (search for similar items in EconPapers)
JEL-codes: C5 H1 H2 (search for similar items in EconPapers)
Pages: 26 pages
Date: 1999-02-20
Note: ISSN 1485-6441. Earlier versions of this paper was released as University of Victoria Department of Economics Discussion Paper 97-8, April 1997, and UVic EWP9807, EWP9810.
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Citations: View citations in EconPapers (93)

Forthcoming in "Empirical Economics", 1999.

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Related works:
Journal Article: Modelling the hidden economy and the tax-gap in New Zealand (1999)
Working Paper: Modelling the Hidden Economy and the Tax-Gap in New Zealand (1998)
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