how to calculate shadow economy as independent variable to estimate its effect/impact on states tax collection ? is it possible to estimate at state level ?.
There are DIRECT APPROACHES that employ either surveys and samples based on voluntary replies, or tax auditing and other compliance methods. Sample surveys are widely used in a number of countries to measure the shadow economy.
And there are INDIRECT APPROACHES also called indicator approaches, are mostly macroeconomic, and use various economic and other indicators that contain information about the development over time of the shadow economy. We can divide them in:
1) Discrepancy between National Expenditure and Income Statistics
The difference between expenditure and income is an indicator of shadow economy.
2) Discrepancy between Official and Actual Labor Force
The problem of this method is differences in the rate of participation may have other causes
3) The Transactions Approach
It can be assumed that there is a constant relation over time between the volume of transactions and official GNP. It allows computing chances in shadow economy with respect to the base year.
4) The Currency Demand Approach
Shadow transactions are undertaken in the form of cash payments, so as to leave no traces for the authorities. An increase in the shadow economy will therefore increase the demand for currency.
5) The Physical Input (Electricity Consumption) Method -my favourite one-
Electricity consumption is the single best physical indicator of overall economic activity. By having a proxy measurement for the overall economy and subtracting it from estimates of official GDP, an estimate of unofficial GDP is derived. The difference between the growth of official GDP and the growth of electricity
consumption is attributed to the growth of the shadow economy.
http://www.economics.uni-linz.ac.at/members/Schneider/files/publications/JEL.pdf
Why not to try to see the difference between the 'official earnings' and spendings measured by national demand? It may help.
There are DIRECT APPROACHES that employ either surveys and samples based on voluntary replies, or tax auditing and other compliance methods. Sample surveys are widely used in a number of countries to measure the shadow economy.
And there are INDIRECT APPROACHES also called indicator approaches, are mostly macroeconomic, and use various economic and other indicators that contain information about the development over time of the shadow economy. We can divide them in:
1) Discrepancy between National Expenditure and Income Statistics
The difference between expenditure and income is an indicator of shadow economy.
2) Discrepancy between Official and Actual Labor Force
The problem of this method is differences in the rate of participation may have other causes
3) The Transactions Approach
It can be assumed that there is a constant relation over time between the volume of transactions and official GNP. It allows computing chances in shadow economy with respect to the base year.
4) The Currency Demand Approach
Shadow transactions are undertaken in the form of cash payments, so as to leave no traces for the authorities. An increase in the shadow economy will therefore increase the demand for currency.
5) The Physical Input (Electricity Consumption) Method -my favourite one-
Electricity consumption is the single best physical indicator of overall economic activity. By having a proxy measurement for the overall economy and subtracting it from estimates of official GDP, an estimate of unofficial GDP is derived. The difference between the growth of official GDP and the growth of electricity
consumption is attributed to the growth of the shadow economy.
http://www.economics.uni-linz.ac.at/members/Schneider/files/publications/JEL.pdf
It's an interesting issue - one that I am heavily whetted in. I haven't found the best method, but the descriptive stats do manifest that over 20 percent of OECD GDP is "unaccounted for"
I have used this reference:
OECD (2002): Measuring the Non-Observed Economy: A Handbook, OECD, Paris
The Energy Consumption Method is my favourite too.
The electricity consumption method could be checked here:
Kaufmann, Daniel and Kaliberda, Aleksander (1996) "Integrating the Unofficial Economy into the Dynamics of Post-Socialist Economies: A Framework of Analysis and Evidence", The World Bank, Policy Research Working Paper
Lacko, Maria (1999) "Hidden Economy: An Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries in 1989-1995" Economic Department, University of Linz, Austria
The electricity approach could be advanced by introducing other types of energy consumption.
Attempted measurement of the shadow economy for computer hacking, malware, spam, etc. for intelligence and law enforcement agencies by cloning the IT sector in an input-output model of the U.S. economy and presented some of those results at DEFCON in 2008. Encountered major problems defining what is in fact illegal since many hacker and spamming organizations are state sponsored. The following citations are variants on the study.
(2009) *Measuring and Integrating the Shadow Economy in Information Technology, LAUR-09-01778, LANL Annual Risk Symposium, Pojoaque, NM, April
(2008) Measuring and Integrating the Shadow Economy: A Sector-Specific Approach, LAUR-08-5372, presented at DEFCON 16, Las Vegas, August
(2008) *The Market for Malware and the Hacker Economy, LAUR-08-5809, August
The problem with the electricity method is that there is a trend, because of energy saving technical progress, and -most important- obviously demand responds to prices: thus you cannot conclude that a divergence of official gdp or gni or other macro variables as officially recorded and electricity consumption is attributable to a chang in the shadow economy. My personal feeling is that only surveys and microdata would tell you something, but the estimate in this field is more an art than a science, for several reasons.
i want to work on this topic , what is the detail of transaction approach?
In Germany
one way of measuring shadow industries is analyzing the do-it-yourself shops (DIY stores) - their reporting has to split between professionell inhandicraft revenues and private customers. (diff. discounts)
In bed&breakfast offering they check the purchasing volume compared with benchmarking figures.
the customs authorities got a new job to detect shadow business (since due to the EU the customs job descreased) - they report their findings. rgs Gerd
- Badges
- Science topic
- Similar topics
- Applied Mathematics
- Calculations