The Measurement Study Of The Size Of The Informal Economy In Henan Province

The informal economy is a byproduct of government intervention in the market, its prevalence countries in the world, is an important part of a country’s overall economy.Researching on the informal economy for a long time, especially the1960s and1970s, there is economic downturn, high unemployment and high inflation coexist "stagflation" phenomenon in many western countries, but the economic theory inability to explain this phenomenon. In this case, some economists try to proceed from the informal economy to explain these economic phenomena. They found through research that because there is less government regulation and not be counted as statistical system to economic activity, making the existing national economic accounting system cannot accurately reflect the real situation of the economic activity, so that economic growth is underestimated and the unemployment rate is overvalued, which leading the traditional economic theory flailing to interpretation this economic phenomenon. Obviously, there is no doubt that the study provides a new idea on this theory of "stagflation". Subsequently, national economists continue to explore in this area, an informal economic theory and calculation methodology were created.The reason why people are so concerned about the informal economy, is that the rapid expansion of the scale of the informal economy to bring a range of harm to the social and economic, that caused huge loss of tax revenue and reduce government revenue, increase the budget deficit; upset rational allocation of social resources, making resource allocation efficiency decreased; led to the statistical deviation; disruption of normal economic order.Throughout the previous studies, we found that research focuses on the informal economy at the national level, a large number of scholars have analyzed the specific reasons that impact a country’s informal economic activity, and used of different methods measuring the scale of a country’s informal economy, but there was very little research specific to a province or territory. From the provincial level to study the influencing factors and the size of the informal economic activities, can make local administrative departments have a more intuitive understanding of the informal economic activities, and concrete measures can be taken to control the local informal economic activity. As Henan is a large populous and large industrial and agricultural provinces, not only its economic output is high, but also has a more balanced development in all aspects, so "informal economy" has a more active development in Henan Province. As a result, the object of study is more representative sense. Therefore, in this paper we select the appropriate method to measure the size of the informal economy in Henan province, so we have a more intuitive understanding of the informal economic activities of Henan.In the study of the informal economy, one difficulty is that there has not a unified definition of the informal economy, different definition of the informal economy will involve different economic activity. This paper we will adopt the definition of the informal economy which made by Schneider, Buehn&Montenegro (2010), including the informal enterprises and the individual who is not registered, a declaration or registration, declaration of failure; untaxed or cash transactions are engaged in business activities. There is not including drug trafficking, smuggling and selling counterfeit and shoddy goods and other serious economic crimes. We study the informal economic activities in Henan Province on this definition.Another difficulty is estimate of the size of the informal economy, because of its concealment and tax evasion, that it cannot be obtained by directly observed, can only be obtained by indirect means. In this paper, we use multi-factor and multi-index model (MIMIC), select the tax burden, income, unemployment, self-employment rates, government regulation as the reason for the variable, real GDP growth, the labor force participation rate as an indicator variable, using the data from1978to2012to measure the size of the informal economy in Henan Province, then we use fuzzy logic approach to measure the willingness of people to participate in informal economic activities, thus to validate the results of the MIMIC model from the side.This paper is divided into five chapters for writing. The first chapter is the introduction, the main content is research background, significance, research ideas, research methods and the innovation and inadequate of the research; Chapter II is a literature review, mainly on the theoretical study done by scholars for informal economic activities and measure their size; Chapter Three is to define the "informal economy" activities which will be discussed in this paper, and select estimates "informal economy" activities approach; Chapter Ⅳ is the empirical part of the paper, through using the MIMIC method and fuzzy sets to measure the size of the informal economy in Henan Province by the collected data; Chapter V is the policy recommendations section of this article, we make policy recommendations governance Henan informal economic activities targeted against the conclusions previously studied.The main conclusions of this paper are the following:First, the main factors affecting the informal economic activities in Henan Province is the tax burden, income and self-employment. The heavier tax burden, the more intense the people engaged in informal economic activities, so the larger the size of the informal economic activity; while higher income, their willingness to participate in the informal economic activity will reduce, and the size of the informal economic activity will decreases; the higher of the rate of self-employment, the greater of the scale in the informal economy. Second, in1978and2012the size of the informal economy in Henan province between5%-25%, can be roughly divided into four phases, the first phase, the size of the informal economy was reducing from1978to1984; the second stage:the scale of informal economies began to rise each year from1985to1993; the third stage:informal Economy in Henan Province emergence a downward trend in the tide form1994-1999;the fourth phase:from2000to2012, the size of the informal economy in which ten gradual has emerged upward trend. Third, the fluctuation trend of the wishes that people involved in informal economic activities calculated by fuzzy set method and the trend of economic activity as measured by MIMIC method is basically the same, so that confirmed the reliability of the results obtained from MIMIC from the side.According to the above conclusion, the paper proposed the proposal of the governance the informal economic activities from strengthen government regulation, increase citizen awareness taxes, improving the statistical system and other general aspects:First, the role of the government regulator, the regulator’s role in the development of rational economic policies, improve government efficiency and reduce the cost of entering the formal economy; second, Strengthen supervision and improve the running costs of informal economy. Third, improving the legal system; Fourth, the establishment of a sound tax system; Fifth, increasing civic taxes; Sixth, improving the statistical system.