Underground economy estimates for non-OECD countries using currency demand method, 1984-2005

Embaye, Abel (2007): Underground economy estimates for non-OECD countries using currency demand method, 1984-2005.

Abstract

The paper estimates the size of underground economy induced by tax evasion for cross-section of non-OECD countries using currency demand method. Unlike previous studies which usually focus only on the tax rate as the tax evasion factor, the paper presents theory consistent tax evasion estimates by augmenting the enforcements strength of the tax administration as additional determinant of the level of tax evasion. The estimation strategy includes the use of the Arellano-Bond GMM dynamic panel data method that is suitable in dealing with the issue of persistence and endogeneity problems in the estimation of currency demand equation. The study finds substantial underground economy in the non-OECD countries for the period 1984-2005 ranging from 2-69 percent of GDP.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tax evasion; underground economy; currency demand; enforcement; non-OECD; Dynamic Panel Data
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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