Estimating the Black Economy through Monetary Approach: A Case Study of Pakistan

Hussain, M. Haider and Ahmed, Qazi Masood (2006): Estimating the Black Economy through Monetary Approach: A Case Study of Pakistan. Published in: SPDC Research Report

Abstract

In the recent years, the ‘black economy’ has held enormous appeal for policy makers. Presence of black economy creates critical misrepresentation of macroeconomic variables in official estimates that lead to the false determination and delusional impact of economic policies. Similarly, black economy represents the unrecorded potential of the economy vis-à-vis resource generation and mobilization. The Economy of Pakistan underwent several minor tax reforms since 1960’s. However, the tax and tariff reform of 1990’s, committed under international pressure, was the first comprehensive exercise and therefore it becomes highly desirable to gauge its impact on the black economy and tax evasion practices. This paper, with some modifications, uses the standard monetary approach to obtain the latest estimates of the size of black economy and its macroeconomic implications thereof.

• Item Type: MPRA Paper
• Language: English
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

References

Ahmed, Mehnaz and Qazi Masood Ahmed (1995) ‘Estimation of the Black Economy of Pakistan through the Monetary Approach’, Pakistan Development Review, Vol 34, No. 4, pp.791-807.

Ahumada,-Hildegart; Garegnani,-Maria-Lorena (1999) ‘Hodrick-Prescott Filter in Practice’, Economica-(National-University-of-La-Plata); 45(4), pages 61-76.

Aslam, S. (1998) ‘The Underground Economy and Tax Evasion in Pakistan: Annual Estimates (1960–1998) and the Impact of Dollarization of the Economy’, The Pakistan Development Review 37:4, pp. 621–631.

Cagen, P. (1958) ‘The Demand for Currency Relative to Total Money Supply’, Journal of Political Economy 66, pp. 303–28.

Feige, Edgar L. (1979) ‘How Big is Irregular Economy?’ Challenge22. Nov.-Dec.

Feige, Edgar L. (1990) ‘Defining and Estimating Underground and Informal Economies: The New Institutional Economics Approach’, World Development 18 (7), July 1990, pp.989-1002.

Frey, Bruno S., and Hannelore Weck-Hannemann (1984) ‘The Hidden Economy as an ‘Unobservable’ Variable’, European Economic Review, 26, 33-53.

Guttman, Peter M. (1977) ‘The Subterranean Economy’, Financial Analyst Journal 26-34, Nov.-Dec.

Hodrick, R.J. and E.C. Prescott (1997) ‘Postwar U.S. Business Cycles: An Empirical Investigation’, Journal of Money, Credit, and Banking, 29, 1–16.

Iqbal, Z., S. K. Qureshi, and R. Mahmood (1998) ‘The Underground Economy and Tax Evasion in Pakistan: A Fresh Assessment’, PIDE Research Report No. 158.

Kemal, Ali (2003) ‘Underground Economy and Tax Evasion in Pakistan: A Critical Evaluation’, PIDE Research Report No. 184.

Maravall, A. and del Rio, A. (2001) ‘Time Aggregation and The Hodrick-Prescott Filter’, Working Paper 0108, Research Department, Banco de España.

Pakistan, Government of (various issues), Pakistan Economic Survey, Ministry of Finance.

Pakistan, State Bank of (various issues), SBP Annual Report.

Qureshi, M. Munir (1989) Fiscal Imperatives in Pakistan’s Economic Development, Progressive Publishers, Lahore, Pakistan.

Ravn, M., and Uhlig, H.(1997) ‘On adjusting the HP-Filter for the Frequency of Observations’. Tilburg University Working Paper.

Schneider, Friedrich and Bruno S. Frey (2001) Informal and Underground Economy, Economics, in Ashenfelter, Orley, in International Encyclopedia of Social and Behavioral Science, Vol. 12, Elsevier Science Publishing Company, Amsterdam.

Shabsigh, Ghiath (1995) ‘The Underground Economy: Estimation, and Economic and Policy Implications - The Case of Pakistan’, IMF Working Paper: 95/101, October.

Tanzi, Vito (1980) ‘The Underground Economy in the United States: Estimates and Implications’. Banca Nazionale Del Lavaro. (Quarterly Review). Dec.

Tanzi, Vito (1982) Underground Economy and Tax Evasion in the United States: Estimates and Implications, In Vito Tanzi (ed) The Underground Economy in the United States and Aborad. Lexington, MA: Lexington Books.

Tanzi, Vito (1983) ‘The Underground Economy in the United States: Annual Estimates 1930-1980’, IMF Staff Papers. 3:2 283-305.

Yasmin, Bushra and Hira Rauf (2004) ‘Measuring the Underground Economy and its Impact on the Economy of Pakistan’, The Lahore Journal of Economics, Vol.-9, No. 2, July-December.