Estimating the Underground Economy using MIMIC Models

Authors

  • Trevor Breusch Crawford School of Public Policy, The Australian National University, Canberra, Australia

Keywords:

Underground Economy, MIMIC, LISREL® Software, Structural Modelling

Abstract

MIMIC models are being used to estimate the size of the underground economy or the tax gap in various countries. In this paper, I examine critically both the method in general, and three applications of the method by Giles and Tedds (2002), Bajada and Schneider (2005) and Dell’Anno and Schneider (2003). Connections are shown with familiar econometric models of linear regression and simultaneous equations. I also investigate the auxiliary procedures used in this literature, including differencing as a treatment for unit roots and the calibration of results using other data. The three applications demonstrate how the method is subjective and pliable in practice. I conclude that the MIMIC method is unfit for the purpose.

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Volume 2.1 of JOTA - Breusch Cover

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Published

07-04-2016

How to Cite

Breusch, T. (2016). Estimating the Underground Economy using MIMIC Models. Journal of Tax Administration, 2(1), 41–72. Retrieved from https://jota.website/jota/article/view/137