C5- [2016 Soares & Afonso] - MIMIC model para Portugal

 



 

ANALYSIS OF ARTICLE

Good article applying MIMIC to estimate Portugal’s NOE.

It assesses causal and indicator variables, and it’s interesting to assess the usage of certain variables for Portugal, and how they would reflect in a model for Brazil.

 

 

SUMMARY OF ARTICLE (provides an overview of the Article, with copy & paste of contents, aiming to summarize its contents).

 

Causal variables:

1.      Tax burden – most important determinant of tax evasion, as per the literature.

a.      Direct taxes and social contributions as percentage of GDP - Positive with NOE.

b.      Indirect taxes as percentage of GDP - Positive with NOE.

c.       Subsidies and social benefits as a percentage of the disposable income – negative with NOE

2.      Regulation burden – the greater the burden the greater the incentive to opt for the NOE

a.      Government expenditure measured by the weight of government consumption on GDP – ambiguous with NOE

3.      Required standard of living – aim of a better living should imply an increase in the NOE as people may require an additional unofficial job

a.      Private consumption as a percentage of GDP – positive with NOE

b.      Disposable income – positive with NOE (2009 Buehn, Karman and Schneider)

4.      Specific causes of the monetary model

a.      Interest rate – negative with NOE (opportunity cost)

b.      Inflation rate – positive with NOE

Due to the lack of available information and the unfeasibility of correctly estimating a monetary method and an overly complex structural equation model with regard to the  sample size, we have not included other potential causes such as public employment upon the labor force, unemployment insurance, self‐employment, governments spending on combating tax evasion, indices of corruption, labor market flexibility, size of government, legal system and property rights, labor force share with wages set by centralized collective bargaining, labor market regulations and regulation

 

 

Indicator variables:

1.      Currency in circulation outside of banks – assumption that irregular transactions use only cash. Demand grows when NOE grows

2.      Real GDP – authors define a positive coefficient.

 

 







 

Results:









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