Planning and Budgeting

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Hidden nature of underground economy makes it difficult to measure and carry out a direct study on it . Thus, most of the common measurement methods are the ones that indirectly estimate the extent of these activities and suffer from restrictive assumptions. In the past two decades, economists began to pay attention to measurement of underground economy volume and its causes and effects more than before. A larger part of economic literature has been devoted to the studies done on this subject as a result. Although evidences are indicative of the probable prevalence of this phenomenon in Iranian economy, limited studies have been conducted on its nature and volume as well as on its socio - economic impacts. By definition, underground economy refers to the activities done legally or illegally without being registered in the official statistics. Accordingly, the activities in the context of underground economy can be categorised into four groups, namely houshold, unofficial, irregular and illegal. This researchwork presents various methods for estimating the volume of underground economy and applies one of them, i.e. regression method(OLS) to examine the extent of underground economy in Iran during 1976-2000. The resarch uses the "demand for money" method which has very few limitations and enjoys considerable benefits for mesuring illegal economy in Iran. We used tax burden variables, exchange burden, narcotics index, average traiff rate and exchange rate difference in the estimation models as the factors of formation and development of black economy in Iran. “Demand for currency” and “demand for money” variables have been applied as indicators reflecting the effects of black economy. Estimating black economy in Iran by using the selected models shows the performance of this part of national economy has experienced considerable growth during the previous decade and it requires the reserchers and policy - makers to pay more attention to the problem.

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