Estimating the Income Reporting Function for the Self-Employed

Tedds, Lindsay (2007): Estimating the Income Reporting Function for the Self-Employed.

Abstract

There is considerable interest in measuring the underground economy using microeconomic data. One such method estimates income under-reporting by households by assuming a known, parametric form of the Engel curve and making the further parametric assumption that households under-report their income by a constant fraction, independent of income. This paper proposes a nonparametric approach which avoids functional form restrictions and enables the reporting function to vary across income levels and household characteristics. I illustrate by estimating the effect of the Canadian Goods and Services Tax on income under-reporting.

• Item Type: MPRA Paper
• Institution: University of Victoria
• Language: English
• Keywords: Underground Economy; Income Under-reporting; Nonparametric Estimation; Engel Curve
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

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