Using panel data to exactly estimate under-reporting by the self-employed
Kim, B., Gibson, J. & Chung, C. (2008). Using panel data to exactly estimate under-reporting by the self-employed. (Department of Economics Working Paper Series, Number 15/08). Hamilton, New Zealand: University of Waikato.
Permanent Research Commons link: https://hdl.handle.net/10289/1583
The income of the self-employed is often assumed to be understated in economic statistics. Debate exists about the extent of under-reporting and the resulting measures of the size of the underground economy. This paper refines a method developed by Pissarides and Weber (1989) and uses discrepancies between food shares and reported incomes to estimate under-reporting by the self-employed. In contrast to previous studies our panel data methodology distinguishes income under-reporting from transitory income fluctuations of the self-employed, and provides an exact estimate of the degree of under-reporting rather than just an interval estimate. Using panel data from Korea and Russia we estimate that 38 percent of the income of self-employed households in Korea and 47 percent of the income of Russian self-employed households is not reported.
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