Modelling the Hidden Economy and the Tax-Gap in New Zealand

Abstract

This paper develops and estimates a structural, latent variable, model for the hidden economy in New Zealand, and a separate currency-demand model. The estimated latent variable model is used to generate an historical time-series index of hidden economic activity, which is calibrated via the information from the currency-demand model. Special attention is paid to data non-stationarity, and to diagnostic testing. Over the period 1968 to 1994, the size of the hidden economy is found to vary between 6.8% and 11.3% of measured GDP. This, in turn, implies that the total tax-gap is of the order of 6.4% to 10.2% of total tax liability in that country. Of course, not all of this foregone revenue would be recoverable, as not all of the activity in the underground economy is responsive to changes in taxation or other policies.

Consumer Expenditures and Home Production at Retirement – New Evidence from Germany

“… 6. For the strengths and weaknesses of the various methods see Bhattacharyya (1999), Breusch (2005a, 2005b), Dell'Anno and Schneider (2009), Dixon (1999), Feige (1989), Feld and Larsen (2005), Giles (1999a, 1999b, 1999c), Schneider (1986, 2001, 2003, 2005, 2006), Schneider and Enste (2000a, 2000b, 2002, 2006), Tanzi (1999) and Thomas (1992, 1999). …”

How large is Vietnam's informal economy?

“…Many studies indicate that the burdens of tax and social welfare systems are key causes of the informal economy's growth (Alm, Martinez-Vazquez, & Torgler, 2006;Dell'Anno, 2003;Giles, 1999;Schneider, 2010;Schneider & Enste, 2000Tanzi, 1980;Thomas, 1992). Schneider and Enste (2002) point out that tax and welfare policies have marked effects on gross and net incomes.…”

“…If we choose 2000, for example, as the base year and make an estimate of the size of the informal economy for 1995, the formula in equation 5 is as follows: Giles (1999) New Zealand MIMIC Giles and Tedds (2002) Canada MIMIC Schneider, Chatterjee, and Chaudhuri (2003) Countries in Asia MIMIC Negative Frey and Weck-Hanneman (1984) OECD MIMIC Loayza (1997) 14 Latin American countries MIMIC Kaufmann and Kaliberda (1996) Transition countries If we choose 2000, for example, as the base year and make an estimate of the size of the informal economy for 1995, the formula in equation 5 is as follows: Giles (1999) New Zealand MIMIC Giles and Tedds (2002) Canada MIMIC Schneider, Chatterjee, and Chaudhuri (2003) Countries in Asia MIMIC Negative Frey and Weck-Hanneman (1984) OECD MIMIC Loayza (1997) 14 Latin American countries MIMIC Kaufmann and Kaliberda (1996) Transition countries…”

An Empirical Estimation of the Underground Economy in Ghana

“…However, this objective stands to be defeated, if the underground economy forms a larger and persistently increasing proportion of the total economy. Aside from the differences in the size of the unrecorded hidden economy across countries and regions, they do also vary over the business cycle [4,5].…”

“…There have been a number of reasons attributed to the increase in research into this area of study. Giles [4,5] observed that the rise in research into this area of study is due to the growing problem of foregone revenue resulting from the underground economy. Underestimating the GDP implies, for example, an overestimation of the public deficit/GDP and Debt/GDP ratios; therefore, any fiscal and monetary policy decision would be based on biased official figures [6].…”