Schneider, Friedrich Braithwaite, Valerie Reinhart, Monika
Year of Publication:
Working Paper No. 0107
This paper first gives an explanation of the behaviour which motivates individuals to engage in the shadow economy. It will be shown that people who fear being caught by tax authorities will be less likely to work in the shadow economy and those who earn more money in the official economy will also work less in the shadow economy. The result of a logistic regression shows that if others are seen to be engaged in the shadow economy then this increases subsequent demand for such activities. It was found that on average, a shadow economy worker earned AUS$2135.31 during the year 2000, and households spent AUS$2,293.00 for these services. Using micro-data to calculate an overall aggregate figure for the estimated size of the shadow economy in Australia during the year 2000, it was found that between 4.81% and 8.8% of the gross national income (GNI) was earned in the cash economy.