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Hidden in plain sight: using household data to measure the shadow economy

  • Tomáš Lichard
  • Jan HanousekEmail author
  • Randall K. Filer
Article
  • 32 Downloads

Abstract

We develop an estimator of unreported income that relies on more flexible identifying assumptions than those that have been used previously. Assuming only that evaders have a higher consumption–income gap than non-evaders in surveys, our model enables the estimation of both the probability of hiding income and the amount of unreported income for each household. We illustrate the method using Czech and Slovak household budget surveys. Our results are robust to alternative specifications. Furthermore, we show that since the underreported share decreases with reported income, income inequality in these countries may be lower than suggested by the reported income.

Keywords

Tax evasion Income underreporting Consumption–income gap Income inequality 

JEL Classification

C34 H26 E26 

Notes

Compliance with ethical standards

Conflict of interest

Tomas Lichard and Jan Hanousek declare that they have no relevant or material financial interests that relate to the research described in this paper. Randall Filer declares that he has no relevant or material financial interests that relate to the research described in this paper. He was the principal investigator of the NSF grant cited in the paper (#SES-0752760, awarded to the Research Foundation of the City University of New York). None of the authors declares any conflict of interest.

Ethical approval

No other party had the right to review the paper prior to its circulation. Our research paper/methodology is not involved on the collection of data on human and/or animal subjects. Data we use has been collected by local statistical offices, following Eurostat rules/methodology and code of ethics.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  • Tomáš Lichard
    • 1
    • 2
  • Jan Hanousek
    • 2
    • 3
    Email author
  • Randall K. Filer
    • 2
    • 4
    • 5
    • 6
  1. 1.University of EconomicsPragueCzech Republic
  2. 2.CERGE-EI, a joint workplace of Charles University in Prague and the Economics Institute of the Czech Academy of SciencesCERGE-EIPragueCzech Republic
  3. 3.CEPR, Center for Economic Policy ResearchLondonUnited Kingdom
  4. 4.Department of EconomicsHunter College and The Graduate Center, CUNYNew YorkUnited States
  5. 5.IZABonnGermany
  6. 6.CESifoMunichGermany

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