GDP and Underground Economy

8/16/2019 GDP and Underground Economy

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Macroeconomic Theory and Policy(Econ 302)

Notes on Underground

Economy Within theContext of Systems ofNational Accounts

By Ben

1


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SYSTEMS OF NATIONAL AO!NTS

• I" i# a #y#"em o$ coheren"%con#i#"en" and in"e&ra"ed #e" o$

macro economy acco'n"#%alance #hee"# and "ale# a#edon a #e" o$ in"erna"ionally a&reed

conce"#% de*ni"ion%cla##i*ca"ion# and acco'n"in&r'le#+

• The a&reed #"andard# en#'re 2


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• SNA rere#en"# comrehen#i,eand de"ailed record o$ economic

ac"i,i"y and "he in"erac"ione"-een economic a&en"#+

• They do ro,ide indica"or# $or"he le,el o$ economic ac"i,i"yand "he -eal"h o$ a na"ion

o,er"ime+ 3


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Yo' are already $amiliar -i"h "he"hree me"hod# o$ mea#'rin& ./P

• on#'m"ion or eendi"'re

aroach (mo#" cen"ral inmacroeconomic#)

• Prod'c"ion aroach (,al'eaddi"ion)% and

• Income aroach

e -ill roceed "o loo a"


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Prolem# A##ocia"ed -i"h./P

UNDERGROUND ECONO!

Tran#ac"ion# "ha" &enera"e

&ood# and #er,ice# mi&h" no" eincl'ded in mea#'rin& ./P 4Incl'din&5

Par" "ime 6o#% ille&al &amlin&%#e "rade% #m'&&lin&% ille&al dr'&

dealin&% money la'nderin&% 7


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Prolem# A##ocia"ed -i"h./P

UNDERGROUND ECONO!

Peole a""em" "o conceal

"ran#ac"ion# "ha" may no" eille&al% '" $or -hich "hey are no"comlyin& -i"h "a or

immi&ra"ion la-# or o"her&o,ernmen" re&'la"ion#

Peole conceal "ran#ac"ion# "ha" 8


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ro em# ##oc a e -./P

UNDERGROUND ECONO!

In mo#" co'n"rie# "he ,al'e o$ille&al ac"i,i"ie# i# no" incl'deda# a ma""er o$ rincile e,en i$"hey are mea#'rale+

Some economi#"# ar&'e "ha"mea#'rale ille&al ac"i,i"ie#m'#" e incl'ded in ./P+

;


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UNDERGROUNDECONO!

• Macroeconomic olicie# arein


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UNDERGROUND ECONO!

• !nrecorded economic ac"i,i"ie#lead "o 'nder e#"ima"ion o$

economic ,ariale# #'ch a# ./P%#a,in% con#'m"ion%rod'c"i,i"y and alance>o$>

aymen"#

• Thi# may lead "o "he -ron&

concl'#ion# ao'" "he ?


10/35

UNDERGROUND ECONO!

• !ndere#"ima"ion o$ ./P a@ec"#o"her ,ariale# "ha" arecalc'la"ed '#in& ./P #'ch a#'lic de*ci" ./P ra"io andde" ./P ra"io+

•

Mea#'re# o$ income di#"ri'"iondo no" re


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/e*nin& "he !nder&ro'nd Economy

• I" con#i#"# o$ ac"i,i"ie# -hich -eha,e re,io'#ly men"ioned 4

reca+• The#e may e le&al or ille&al

• I" i# ,ie-ed $rom o"h o#i"i,e

and ne&a"i,e er#ec"i,e#+• /e*nin& i" i# imor"an" in

'nder#"andin& i"# charac"er and

de"erminan"# and no-in& ho- i"11


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• Smi"h (1??) de*ne# "he'nder&ro'nd economy a#

Bmare">a#ed rod'c"ion o$&ood# and #er,ice#% -he"herle&al or ille&al% "ha" e#cae#

de"ec"ion in "he oCcial e#"ima"e#o$ ./P+D

• Fei&e (1??;) iden"i*e# $o'r "ye#

o$ 'nder&ro'nd economic5 ille&al%12


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"llegal Economy

• To"ali"y o$ "he re,en'e# "ha" are

&enera"ed y "ho#e economicac"i,i"ie# "ha" ,iola"e "he le&al#"a"'# o$ le&i"ima"e $orm# o$

"radeActi#ities

• A# re,io'#ly li#"ed > reca13


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$!%ES O& UNDERGROUND ECONO"CAC$"'"$"ES

Unre(orted Economy

• BTo"ali"y o$ economic ac"i,i"ie#

"ha" e#cae or a,oid *#cal r'le#a# "hey are de*ned in *#calcode#D

Acti#ities• !nreor"ed re,en'e ei"her $rom

le&al #o'rce# or ille&al #o'rce#+1


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Unrecorded Economy

• Ac"i,i"ie# "ha" a,oid in#"i"'"ional

con,en"ion# "ha" de*ne "henece##ary re'iremen"# $or "hereor" "o &o,ernmen"al a&encie#

$or #"a"i#"ic#• Acti#ities

17


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"nformal Economy

• Economic ac"i,i"ie# "ha" a,oid

co#"# and ecl'ded $rom "heri&h"# and ene*"# "ha" comealon& -i"h lea#in&% -or

con"rac"#% loan and #ocial#ec'ri"yD

Acti#ities

• e,en'e "ha" i# &enera"ed y 18


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$A)ONO! O& $!%ES O& UNDERGROUNDECONO"C AC$"'"$"ES

"llegal Acti#ities * onetary$ransactions +,$-

•

Trade -i"h #"olen &ood#G dr'&dealin& and man'$ac"'rin&Gro#"i"'"ionG &amlin&G

#m'&&lin&G $ra'd• o'n"er$ei"in&% om'"er #y#"em

hacin&G "radin& #"olen

in$orma"ionG iden"i$y "he$"G 1;


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"llegal Acti#ities * Non onetary$ransactions +N,$-

• Har"er o$ dr'% #"olen &ood#%#m'&&lin& e"c+ Prod'ce or &ro-in&dr' $or o-n '#e+ The$" $or o-n '#e+

1=


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.egal Acti#ities * ,$ * $axE#asion

•

!nreor"ed income $rom #el$>emloymen"G a&e#% Salarie#and a##e"# $rom 'nreor"ed -or

rela"ed "o le&al #er,ice# and&ood#

.egal Acti#ities * ,$ * $ax

A#oidance 1?


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.egal Acti#ities * N,$ * $axE#asion

•

Har"er o$ le&al #er,ice# and&ood#

.egal Acti#ities * N,$ * $axA#oidance

• All do>i">yo'r#el$ -or andnei ho'r hel

20


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W/! $/E UNDERGROUND ECONO!GROWS

• The 'rden o$ direc" and indirec""aa"ion% o"h ac"'al and

ercei,ed+• The 'rden o$ re&'la"ion#

• E"or"iona"e demand $rom "he

&o,ernmen" 'rea'cracy

21


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• The "a morali"y 4 i+e+ "he-illin&ne## o$ indi,id'al# "o ay

"he ri&h" "a a" "he ri&h" "ime+• I" i# in


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• /eclinin& "a morali"y "end# "oincrea#e "he #ie o$ #hado-

economy+• Poor 'ali"y o$ 'lic #ec"or

#er,ice#% lo- admini#"ra"i,e

caaci"y% and income"ence o$&o,ernmen" a&encie# "end "oenco'ra&e &ro-"h o$ "he !E+

• The hi&her "he le,el# o$ 23


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• .o,ernmen"J# #endin& on'nnece##ary eendi"'re may

re#'l" in "he increa#e o$'nder&ro'nd economy 4increa#e# "a 'rden+

•

el$are ene*ciarie# ha,e hi&hdi#incen"i,e# "o -or in "heoCcial economy 4 "hi# red'ce#

"heir ene*"# 2


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Lao'r mare" re&'la"ion#5

• En$orcemen" o$ minim'm

-orin& ho'r#• Hrin& $or-ard "he re"iremen" a&e

y "he #"a"e &o,ernmen"# or

lao'r 'nion# -o'ld increa#e "heincen"i,e# "o -or in'nder&ro'nd economy+

• Economic rece##ion% 27


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Aler" Maochean-a% BMeasuringthe Second Economy in

ZimbabweD% Ho"#-ana Ko'rnal o$Economic#% ol+ 10+ No+ 1(2012)5 2;>7=

Sec"ion 25 a'#e# O$ SecondEconomy In ima-e0 $a1le 2

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EASUR"NG $/E UNDERGROUNDECONO!

23 $he Direct A((roaches5

a) Surveys amon& (#'o#ed)

#'lier# and demander# o$ #'ch#er,ice#+

hallen&e# rela"in& "o

cooera"ion o$ ille&al oera"or#or oera"ion#+

) Audits of tax returns

'nder"aen y "a collec"ion and2;


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$he Direct A((roaches +Cont3-• They #cr'"inie a #amle o$

"aayer# in de"h and 'nder "hrea"#

o$ #anc"ion# $or $ailin& "o collaora"e+• Thi# ro,ide# de"ailed in$orma"ion

on "he #"ron&e#" e,ader#% #'ch a#

"he #el$>emloyed -ho ha,e e""eroor"'ni"ie# $or concealmen"+

• Ta a'di"# are limi"ed "o "aaleac"i,i"ie#+

2=


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$he Direct A((roaches +Cont3-

• eane## o$ #'r,ey# and "a

a'di"in&5• They lead only "o oin" e#"ima"e#

• They are liely "o ro,ide lo-er

o'nd e#"ima"e# ($ailin& "oca"'re all ac"i,i"ie#)

• To ro,ide "rend# in &ro-"h andde,elo men" o$ ! E "he #ho'ld

2?


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$he Direct A((roaches +Cont3-

• Ad,an"a&e# o$ #'r,ey# Ta

a'di"#5• They can ro,ide de"ailed

in$orma"ion ao'" "he !E

ac"i,i"ie#% "he #"r'c"'re andcomo#i"ion o$ "ho#e -ho -or in"he !E economy+

30

EASUR"NG $/E UNDERGROUND


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43 "ndirect or Discre(ancy

a((roaches5

• Per#on# -orin& in "he !E are ale"o spend more "han "heir oCcially

recorded income• The di#creancy may e o#er,ed a"

ho'#ehold# a# -ell a# in a&&re&a"e

na"ional acco'n"# 4 /i#creancy in./P e#"ima"e# '#in& income andeendi"'re aroache#

•

H'" "he di#creancy may e d'e "o 31


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"ndirect or Discre(ancya((roaches +Cont3-

• Labor market discrepancy > A declinein oCcial ar"icia"ion ra"e#% or a lo-ar"icia"ion ra"e comared "o o"herco'n"rie#% may e an indica"ion o$

'noCcial -or+• Monetary market discrepancy. I" i#

a##'med "ha" !E "ran#ac"ion# are

aid in ca#h+ 32


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• "ndirect or Discre(ancya((roaches +Cont3-

• Physical inputs discrepancy, inar"ic'lar "he '#e o$ elec"rici"y

• Thi# i# "he di@erence e"-een "heelec"rici"y

• Tha" -o'ld normally e '#ed "orod'ce "he oCcial na"ional incomeand "he ac"'al con#'m"ion+ The

ece## i# "han a""ri'"ed "o "he 33

EASUR"NG $/E UNDERGROUND


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• $he odel A((roach

• I" i# a##'med "ha" "he in$ormaleconomy i# an B'no#er,ale,arialeD -hich i# in


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$/E UNDERGROUND ECONO!

•

Some Reading aterials• "n#esting in Africa6

7 Zimbabwe Underground

Economy - he !n"isible #ri"er o$the Economy 86 edne#day%Fer'ary 13% 2013

• Hr'no S+ Frey and FriedrichSchneider% B!n$ormal andUnderground Economy %

S"'dienFre aer in$ormal and 37
http://brainsmu.blogspot.com/http://brainsmu.blogspot.com/http://brainsmu.blogspot.com/http://brainsmu.blogspot.com/

Documents

GDP and Underground Economy