Assessing the magnitude of the underground economy in Indonesia currency demand approach

HEYDI, Okuyama, Yasuhide

2009 | Tesis | S2 Magister Ekonomika Pembangunan

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This study’s main objective is to estimate the magnitude of the underground economy in Indonesia for the period between 1970 and 2007. The approach employed in this study is the currency-demand approach which assumes that the underground economy is the direct consequence of tax burden levied by the government to its constituents. This study found that the tax burden—denotes by Indonesia’s domestic tax revenues—has a significant impact to the expansion and contraction of the magnitude of the underground economy. However, the estimates obtained in this study should be taken prudently as they are only estimations. At best, the estimates of the magnitude of the underground economy could serve as an indication or a signal of the existence of other economy shadowing the official economy.

Kata Kunci : Indonesia,underground economy,Currency demand approach