No. 463 - Methods of estimating the underground economy: an application to the Italian case

The paper surveys different approaches to the estimation of the underground economy. First, the focus is on the methodologies adopted by the Italian and French Statistical Institutes, respectively based on the exhaustive estimate of the labour input and on tax compliance data. Secondly, we investigate the currency demand approach; its application to Italian data provides estimates of the value added generated by the underground economy that are substantially consistent with those published by Istat for the period 1992-98, and indicates a significant reduction of this aggregate for the subsequent two years, for which official figures are not available. Finally, we treat the underground economy as a latent variable to be determined through a factor analysis; conclusions emerging from this exercise appear similar to those coming from the previous approaches.