Mission Implausible III: Measuring the Informal Sector in a Transition Economy using Macro Methods1

Jan Hanousek and Filip Palda

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: An easy and popular method for measuring the size of the underground economy is to use macro-data such as money demand or electricity demand to infer what the legitimate economy needs, and then to attribute the remaining consumption to the underground economy. Such inferences rely on the stability of parameters of the money demand and electricity demand equations, or at the very least on knowledge of how these parameters are changing. We argue that the pace of change of these parameters (such as velocity) is too variable in transition economies for the above methods of estimating the size of the underground economy to be applicable. We make our point by using the Czech Republic and other transition country data from the financial and electricity sectors.

Keywords: shadow economy; measureament of tax evasion; transition economies (search for similar items in EconPapers)
JEL-codes: C53 C82 D12 D24 E26 E27 E41 H26 O47 P43 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-05-01
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Mission Implausible II: Measuring the Informal Sector in a Transition Economy Using Macro Methods (2004)
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