The Impact Of Non-observed Econmy On Income Distribution

There is little research about the impact of non-observed economy on the distribution of income, because of the concept of non-observed economy had been proposed by OECD until2002. Non-observed economy is the economic activities which should be accounted for but have not been accounted by the current national economic accounting system, and some activities have not involved by the current accounting system. Other domestic scholars just examined the relationship between the non-observed economy and income distribution, or copy the theoretical model of foreign scholars, did not make mechanism analysis; and theoretical models of foreign scholars only studied the relationship between relative income and non-observed economies of scale, in addition, they did not analyze the impact on income distribution economies of scale not observed.Other scholars only analyze the relationship of non-observed economy and income distribution empirically, or copy the foreign scholars’ theoretical model; they haven’t analyzed the theoretical relationship of them. And the foreign scholars’ theoretical model only analyzes the relationship of non-observed economy and the relative income. In this paper, the theoretical analysis of the relationship between non-observed economy and the income distribution is divided into two parts. Firstly, the size of non-observed economy will influence the behavior of individual labor, which will cause them to choice the non-observed economy sectors by the higher incomes, but the framework of non-observed economy sector’s income distribution is much disproportionate than the normal economy sector, which will affect the overall distribution of income uneven; Secondly, the scale of non-observed economy influence the government’s tax revenue, which will influence the government’s re-distributive capacity and infrastructure construction, which will also affect the willingness of labors to pay taxes, and more labors to choice the non-observed economy sectors, thus the combined effect of the income distribution.This paper estimates the size of24provinces non-observed economy in our country from2003to2012through the structural equation model, updating the provincial panel data of non-observed economy, and the results show that the size of non-observed economy in various regions of our country is4.36to24.6%. In the empirical analysis part, we use the difference GMM model and system GMM model to analyze24provinces and cities income distribution, empirical results show that the non-observed economy has positive effect to he income distribution, when the scale of non-observed economy increase1%, the Gini coefficient will rise0.1percent; in addition, the level of education, the degree of denationalization, income levels, the level of urbanization will also affect the distribution of income. Thus, we can narrow the income gap by reducing the size of non-observed economy, through depressing the level of tax, developing tax system, increasing the income share of GDP and outcome of the government.