Underground economy and estimating the size of underground economy in Turkey

ABSTRACT It is rather difficult to define underground economical activity as it consists of unofficial activities either intentionally or unintentionally. This is why the definitions vary depending on the focus of the researchers concerning the types of underground economy. As well as its definiton, the reasons for underground economy vary from one country to another. Some researchers argue that underground economy has negative influences on official economy, According to other researchers, it has positive influences on official economy. There are many approaches to determine to what extent the underground economy is. The purpose of this study is to estimate the size of underground economy for Turkish economy with the existing approaches. For this purpose the indirect methods, The Tax Evasion Approach, The Employment Approach, The Simple Currency Ratio Method and The Currency Demand Approach have been employed and the results have been estimated. According to the findings, the ratio of underground economy to the GDP is estimated approximately 52.2% regarding The Tax Evasion Approach; 13.6% regarding The Simple Currency Ratio Method; 25.2% and 35.8% regarding The Augmented Currency Ratio Method; 13.6% regarding The Transactions Approach; 15.9% regarding The Currency Demand Approach which employed Bounds Test. In addition, according to The Employment Approach, while the rate of underground employment to the population as a whole is estimated approximately 3.6%, the rate to the non-institutional work force is estimated about 5%. Furthermore, the findings indicate that the growing of underground economy has a tendency to increase during the crisis periods. Key Words: Underground Economy, Official Economy, Indirect Methods, Bounds Test