A report about the shadow economy; households with business income

This paper estimates the extent of income underreporting by households with business income relative to households of wage earners in Estonia. The paper uses a modified version of the methodology pioneered by Pissarides and Weber (1989). The extent of income underreporting is estimated by comparing food Engel curves for households with and without business income. The baseline result is that the reported income of households with business income above 20% of total income must be multiplied by 2.6 in order to attain the same propensity of food consumption as households of wage earners. Households with business income above 0 but below 20% also underreport income, but to a lesser extent. The estimates are higher than those found for developed countries, but consistent with other studies of the shadow economy in transition countries. The analysis also shows that the presence of business income is a better indicator of income underreporting than a reported status of self-employment.

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“6/2013 Merike Kukk, Karsten Staehr. Income Underreporting by Households with Business Income. Evidence from Estonia

Working Papers of Eesti Pank No. 6/2013

Estonia and Germany only eurozone members to cut government debt

Germany and Estonia were the only two Eurozone members who managed to decrease public sector debt in the first quarter of 2013.

According to figures from Eurostat, EU’s statistics office, German government debt is down from 81.9 percent of GDP at the end of last year, to 81.2 percent at the end of March.

Estonia’s debt is the lowest of any of the monetary union’s members, standing at 10.0 percent, down from 10.1 percent.

Ireland (debt up 7.7 percentage points), Belgium (+4.7) and Spain (+4.0) had the highest increases, while outside the zone, Latvia was the leader in the EU, cutting government debt by 1.5 percent in the first three months of this year.

In euros, public debt in the 17 Eurozone nations is 8.75 billion, or 92.2 percent of GDP.

Source: Estonian Review / BNS