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The Research On Estimate And Macro-economy Effect Of The Underground Economy's Scale In China

Posted on:2009-08-06Degree:DoctorType:Dissertation
Country:ChinaCandidate:L Q JieFull Text:PDF
GTID:1119360272476119Subject:Quantitative Economics
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Underground economy refers to the economic activities, which income is not declared to the government, and which is out of control of government and taxation management, and which output value is not included in GDP. As a side product of government's intervening economy, it exists all over the world. However, until the middle of twenties century, the western economic scholars began to pay attention to it and to make research on it. The attention to underground economy orients from the economic fact of the western countries'deflation. Feige and others tried to explain economic improper phenomena from the new perspective of underground. His underground assumption thinks that what to be inspected is economic facts, but not the economic theory. He remarked that there was a bigger and bigger part of economic activities which escaped from government's control and ungulate official information system. If the policy makers and the public react in accordance with the wrong data signal, this might result in the real economic improper. In the prevailing economic activities, underground economy has drawn economic scholars'and Chinese as well as foreign governments'close attention, although it owns the characters , such as information disclosure's insufficiency, the economic activities'being under cover, ect.Since eighties in twentieth century, Chinese underground economic activities emerged in large numbers, such as, black market, illegal fund raising, bribery, and secondary profession and so on. Those activities have immediate effect on national economy's safety, taxation level and economic efficiency. Especially at the aspect of macroeconomic control, the government just make decision in accordance with the public official statistics and take macroeconomic management and control measurements, and in that case, it results in the deviation of some policy away from the truth as well as the policy's inefficiency. In order to improve resource allocation's efficiency and to keep national economy under normal operation, we feel it necessary to strengthen research on the underground of its existing forms, its causes, its computing methods and its influence on national economy. So that we can master the national economy's general development trend to effectively supervise underground economy, and to provide basis for economic policy decision to push forward social economic development.In view of the present research limited to the estimation of underground economy's scale, there is little research on underground economy's reaction to macro economic policy, and its influence on macro economic indicators. Therefore, this dissertation estimated China's underground economy's scale with consideration of China's economic characteristics, and probed the relationship between underground economy and macro economic policy, and the relationship between underground and macro economic indicators, including the follows:The first chapter combs native and foreign research on basis of defining underground economy. At present, the related research mainly focuses on the estimation of underground economy's scale. The estimation methods can be classified as direct and indirect approaches. The direct approaches include labor participation ratio variance approach and taxation auditing approach; and indirect method include income and payment variance approach, material input approach, and GDP segmentation approach and various monetary approaches. Among those approaches, the classical and used widely one is cash ratio approach. Chinese researchers put forward GDP segmentation model. The relative research also includes the relationship between the underground economy and taxation and residents'income. The second chapter combs the relative theories of underground economy. First, Laffer Curve and Vereker Curve of supplies school gave classical description of the relationship between underground economy and taxation. They thought that high tax rate was the underlying cause of underground economy, so that, they suggested that to lower accumulative tax rate and margin tax rate to reduce government's intervention and to carry on taxation reduction. Secondly, to face the fact of deflation, Feige probed the relationship of underground economy and inflation rate and unemployment rate from the perspective of monetary policy. Thirdly, Feige analyzed the effects that economic activities changed into the underground from the perspective of fiscal policy. Besides, Hernando·De·Soto, Peruvian economist, probed its further cause from the perspective of institutional imperfection. Scholars of the new classical political-economy school made research on the relationship between rent-seeking and underground economy from the perspective of public management at the theory level. The above research provide theory basis for latter econometric test and empirical analysis.The third chapter analyzes the classification of China's underground economy from perspective of its performance; moreover, it makes further analysis of its bringing in economic influence. The underground economy has various names, so its definition varies greatly. This dissertation defines the underground economy according SNA system, as the follows: illegal economy, non-declared economy and non-counting economy. By combining China's underground economy's fact, this dissertation makes analysis of its development and its influence on daily economic life. The analysis shows that various underground economic activities has Chinese features and times characteristics, and they are also in the shadow of economy globalization. In view of this, we feel it necessary to carry further analysis of its causes. This chapter makes research on it at the aspects of taxation, profit rate, public economical flaw, and institution imperfection at switch times and movement of population and so on.The fourth chapter makes appraisal of the relative underground economy estimation methods and estimates the underground economy scale dated from 1978 to 2006 by using modified cash ration model. The results reveals that the underground economy scale is being smaller and smaller, its development could be divided into the following stages, 1985-1994 and 1995-2001. In the first stage, the underground economy takes bigger share of GDP, and it varied greatly. The main cause is that China in this stage was experiencing the transformation of planned economy to the market economy. The institution imperfection made the underground economy grew fast. And later, With Chinese institution's perfection, the trend of underground economy was under control. And in latter stage, the percentage of underground economy over GDP is pretty low and steady.The fifth chapter probes the relationship between underground economy and monetary policy and financial policy and taxation by using econometric test approach. First, Granger causal test approach is applied to analyze the relationship between underground economy and monetary policy and fiscal policy. Secondly, the analysis is carried on the influence of China's tax rate on underground economy scale by using variant model and VAR model based on Laffer Curve and Vereker Curve.The research result states that underground has influence on macro economy, and monetary policy will change accordingly, and monetary policy has effects on controlling of underground economy scale; there is positive relationship between underground economy scale and money supply, and the relationship between underground economy scale and money supply has greater influence on the growth rate of underground economy. Besides, the co-integration error and its own previous growth rate of money supply has effects on the change in growth rate of money supply.The changing trend reflects the mutual influence between underground economy and fiscal policy. The reaction of fiscal policy to underground economy is slower, so that it takes longer time to control underground economy scale if fiscal policy taken; and there is positive relationship between underground economy scale and fiscal payment, and it has greater influence on the growth rate of underground economy scale.The research results shows that tax rate's influence on underground economy scale's change becomes steady and continuous, but its strength is less. VAR model shows that change in tax rate has positive effect on the change in underground economy scale, and its contribution rate to the change in the underground economy scale is nearly 30% more or less. It may conclud that tax rate is a major element of change in underground economy scale, but it is time-lagged.The sixth chapter mainly analyzes the relationships between underground economy and main macroeconomic variants. The existing underground economy not only distorts macro economy information passage, it but also has negative effects on macro economic policy making. This dissertation probes the relationship between underground economy and inflation, the relationship between underground economy and resident division of income, the relationship between underground economy and business cycle fluctuation, etc.First, Granger test is used to analyze the relationship between underground economy scale and income variants. The results shows that in long terms change in China's underground economy scale has stronger influence on income allocation'trend; in short terms their mutual influence is less obvious.Secondly, MS(2)-VAR(1) model is applied to analyze the influence of change in underground economy scale on inflation. The result shows that China's underground economy scale owns outstanding 2-stage system characteristics, that is, low-scale stage and high-scale stage. And Chinese underground economy is moving to high-scale stage. With view of its influence on inflation, the influence of underground economy on inflation varies greatly with the various underground economy stages. Since it is at low-scale stage, its influence is relatively weak, but at high-scale stage its influence is rather stronger.Finally, wavelet analysis approach is employed to test the relationship between underground economy and business cycle. The test result shows that their short and middle cycles are characterized as synchronic, but economic growth is prior to the growth of underground economy. With view of their long cycles, their movements are in opposite direction. Granger causal test shows that there exists two-way causal relationship between underground economy and business cycle. Underground economy's influence on economic growth has the characteristics of instantaneity, but not long term memory. In longer term, it is the economic growth which influence underground economy. It can be concluded that there is no causal relationship between underground economy and growth economy.The seventh chapter puts forwards some countermeasures to control underground economy with combining China's economic facts. Underground economy interrupts national economy's normal operation, and do harms to resources'proper allocation, and disturb income allocation order, and causes money loss, and weakens macro economic control and management. This dissertation raises some suggestions, such as, to perfect taxation control, to speed up economic institution restructuring, to enhance legal construction, to choose proper fiscal policy and money policy; to perfect statistical system, and to improve social security system and so on.
Keywords/Search Tags:the Underground Economy's Scale, macroeconomic Policy, taxation, inflation, division of income, Business cycle
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