Using Personal Car Register for Measuring Economic Inequality in Countries with a Large Share of Shadow Economy: Evidence for Latvia

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  • Note: The first version of the paper was presented at the BICEPS seminar in Riga (Latvia) in May 2010. The paper also benefited from comments of participants at the conference “The Shadow Economy, Tax Evasion and Money Laundering” in Münster (Germany) and the KOF Brown Bag seminar in Zurich (Switzerland). Valuable suggestions of an anonymous referee are also gratefully acknowledged. All computations and graphics were made using R 2.15.0.

Abstract

We suggest using information from the state register of personal cars as an alternative indicator of economic inequality in countries with a large share of shadow economy. We illustrate our approach using the Latvian pool of personal cars. Our main finding is that the extent of household economic inequality in Latvia is much larger than officially assumed. According to Eurostat, the officially published estimate of the Gini coefficient for Latvia is 0.374 for 2009, which is much higher than the Gini coefficient value reported for all the 27 EU member countries (0.304), but significantly lower than 0.48 according to our results.

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