Measuring non-observed economy: informal and illegal

Bálint Murai, HCSO National Accounts departmentProduction Accounts sectionbalint.murai@ksh.hu

UNECEGroup of Experts on National Accounts

6 - 9 May 2014.Geneva

Mexico

Instituto Nacional de Estadística y Geografía

Measurement of Informal Economy under the

Framework of the Mexican System of

National Accounts

Observations

The aim estimate the performance of Informal economy

and include in NA give a proposal for a satellite account of Informal

economy

2007 2009 2011

51.750.8 50.7

54.3

57.858.7

52.753.7 54

Share of persons in informal employment in total non-agricultural employment in Mexico (%)

Male Female Total

Reference: Key Indicator of the Labour Market Database

(KILM)

Observations

The aimestimate the performance of Informal economy and

include in NAgive a proposal for a satellite account of Informal

economy ILO conceptual framework, SNA2008 Labour input are calculated separately:

informal sector and informal employment outside the informal sector.

Observations

Informal Economy, 2008: 25,5% of the GDP (8,7% Informal sector+16,8% Informal employment outside the informal sector)

The method applied here, however is not totally clear.

ENOE„Method of

latent Variable”

Hussmanns’ MATRIX

ENAMIN

GVA / Labour Input

Method?

Formal InformalEmployment

Sector Formal Informal

Questions

Calculation steps for the computation of data from ENOE and ENAMIN is not included. (Overview picture)GVA calculation scheme from ENAMIN is not totally clear (e.g. the use of IC/GVA ratios)Use of the Latent Variable method?

Questions

ENOE: asking the employees about the registration or status (formal/informal) of their employer.

Reliable data for the employers?

Different productivity in the formal and informal sector. Any correction while calculating the informal GVA from formal sector data?

Questions

Borderline between underground and informal

On the informal activity there may be some underground activity (e.g. full time emloyment registered half-time, minimum wage, rest of the money is envelop payment.) In our experience enterprises tend to record the same data in the administrative records and in the survey. Even if we knew the informal employment the survey data could not be taken directly for calculating the informal production.

Any correction for the Underground activity?

Canada

Statistics Canada

The underground economy in Canada

1992 to 2011

Observations

Summary of an exhaustive study, lot of information

Long tradition of estimating UE (Almost 3 decades of experience)

Upper bound estimation Volume measure All of the 3 GDP Approaches, Expenditure side is

dominant

Questions

Informal sector

Boundaries between informal and underground activity. Small businesses with revenues less than $30.000 do not have to charge VAT type taxes and are excluded form BR.

Any studies for examining those who are above this limit, but not registered?

Questions

Upper bound method

Maximum potential amount (Throughout the study, except for alcohol, tobacco, tips and rents)

What’s the idea behind using the upper bound method? Why don’t you include them in the official GDP?

Questions

Skimming

Skimming occurs when legitimate businesses fail to declare part of their business income. The type of tax evasion can be different by size and type of enterprises even if we rule out the largest companies.

Threshold for potential tax evaders. (Annual revenues less than 2 million) How did you arrive to chose this threshold? Is this sub-set of enterprises supposed to be homogenous, or do you

investigate them further by the main important indicators of production? (e.g. number of employees; type of activity?)

Skimming rate• How is it validated that the skimming rate is twice as much for the

unincorporated enterprise than for the incorporated?

Questions

Allocation of skimming estimates

Final step in the Reassessment estimation of skimming rates is unfortunately not very clear.

How do you use the Tax audit data in the reconciliation process? Is it used only for adjusting the industrial classification or it changes the level?

Questions

Over-reporting of cost

There are two ways of hiding business income: under-report revenue or over-report cost

Underreporting of revenues was discussed deeply.

Over-reporting of cost?

Mongolia

National Statistical Office Of Mongolia

Non Observed Economy of

Mongolia

Observations

Considerable effort (several projects) for estimating NOE and incorporate it into NA

EUROSTAT Tabular Approach framework Data sources:

LFS+Household unincorporated enterprises producing for the market (HUEMs) survey

Informal sector survey Survey on expert opinion of intentional distortion of business

accounting Establishment census Tax audit data Police, Health organisation, neighboring countries data

Questions

EUROSTAT Tabular Approach

NOE by industries, but by N1-N7 is not includedData for N4 legal person not surveyed N7 other statistical deficiencies?

Information of the GVA compilation for Informal sector production (N1, N5) HH’s production for own final use (N3)

Questions

HUEM

Generally, the results of LFS are not reliable at a lower aggregation level. (Relative small sample and ignorance of data providers.) 2007/2008 ~7000 HHs were interviewed, number of HUEMs ~ 2200.

Did you take this problem into consideration when evaluating HUEM’s data?

Industries NOE GDP Total economy (NOE+ GDP)

Share of NOE

Total 1 332 093,10 8 414 504,50 9 746 597,60 13,7

Agriculture 8 060,20 1 203 348,00 1 211 408,20 0,7

Mining and quarrying 305 661,80 1 981 970,10 2 287 631,90 13,4

Manufacturing 84 089,50 708 931,60 793 021,10 10,6

Electricity, gas, steam and air conditioning supply

1 454,20 174 302,80 175 757,00 0,8

Water supply; sewerage, waste management and remediation activities

2 230,20 33 051,70 35 281,90 6,3

Construction 82 511,70 147 178,00 229 689,70 35,9

Wholesale and retail trade; repair of motor vehicles and motorcycles

528 875,90 1 310 622,10 1 839 498,00 28,8

Transportation and storage 186 841,20 659 297,70 846 138,90 22,1

Accommodation and food service activities

28 266,10 54 553,40 82 819,50 34,1

Other services 104 102,30 2 141 249,10 2 245 351,40 4,6

Questions

NOE by industry

There are 2 areas when one would expect a higher portion of NOE:

Agriculture: 14% of total GVA, NOE: 1% of the total NOE. Unregistered producers, (e.g. estimation of cattle?)Other services: largest share in GDP: 25%, NOE: 8% Usually direct connection to HH, easiest to avoid tax. Personal services, tips, gratuities, etc.

Models

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

5

10

15

20

25

30

Monetary Consumption of Electricity Labor input

Questions

ModelsThe results of the models in the presentation are close in 2010, but the lines are divergent in the earlier periode.

Were there any study to examine the causes of these differences in macro models?

Characteristics of N1-N7 activities can be different. This breakdown allows the investigations for more detailled analysis.

Are there any connection between the NOE categories and the results of the models?

Netherlands

Statistics Netherlands

Inclusion of NOE in Dutch National accounts after the 2010 ESA revision

Observations

Long tradition of doing research on the NOE going back to the 1980s

Very clear paper, logical structure Production approach; labour input data Gives an overall view on the calculations However, the ideas behind the assumptions and

the applied ratios are not always presented.

Questions

Presentation framework

NOE problem areas instead of TAE?

Questions

Cost fraud

Part of Underground Activity why do you deal it separatley?

You calculate it for the small enterprises (less than 10 employees). How do you calculate the share of cost fraud for (the selected items of) IC?

QuestionsNewspaper articles

Based on our experience, data in the newspapers are not always reliable and not suitable for generalisation.

How do you validate the data in the papers? (Or do you use them only for identifying the potential NOE areas picked up by the press?)

Expert guesses, estimations, opinions Do you use expert estimations from outside CBS, (e.g. information from lobby groups, research institutions, accountants)?How do you chose the experts and in which form are you interviewing them?

Questions

Potential double counting

For illegal activities: 0,1% of the previously estimated data.Besides SUT what data sources did you apply?Are there any other area where you have such estimations? Which are the typical activities?

PROCESS TABLE

Basic for NA Figures Adjustments Final NA

Estimate

INPUT PROCESS OUTPUT

PROCESS TABLE

GDP & GNI Components

Basic for NA Figures Adjustments

Surveys and

Censures

Administrative Records

Combined Data

Extrapolations and Models

Data Validatio

n

Conceptual

NOEBalanc

ing

Production

Expenditure

Income

GNI

Final NA Estim

ate

Questions

Question for the discussion

Some NOE type of adjustments may be included somewhere else in the calculation, mainly in the green cells.

Collect typical borderline cases where it is particularly difficult to identify the amount of NOE which had already been calculated earlier somewhere else in the calculation.

An example is agriculture (cultivated area X average yields)

THANK YOU FOR YOUR ATTENTION!

Bálint Murai, HCSO National Accounts department

Production Accounts sectionbalint.murai@ksh.hu