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Modelling the hidden economy and the tax-gap in New Zealand

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Advances in Public Economics

Part of the book series: Studies in Empirical Economics ((STUDEMP))

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.

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Author information

Authors and Affiliations

  1. Department of Economics, P.O. Box 1700, STN CSC, Victoria, B.C., Canada, V8W 2Y2

    David E. A. Giles

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  1. David E. A. Giles
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Editor information

Editors and Affiliations

  1. Department of Economics, Queen’s University, Kingston, Ontario, K7L 3N6, Canada

    Robin Boadway

  2. School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario, N2L 3C5, Canada

    Baldev Raj

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© 2000 Springer-Verlag Berlin Heidelberg

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Giles, D.E.A. (2000). Modelling the hidden economy and the tax-gap in New Zealand. In: Boadway, R., Raj, B. (eds) Advances in Public Economics. Studies in Empirical Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57654-6_4

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  • DOI: https://doi.org/10.1007/978-3-642-57654-6_4

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-642-63324-9

  • Online ISBN: 978-3-642-57654-6

  • eBook Packages: Springer Book Archive

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