This study is the first to provide comparative estimates of the extent of income underreporting by the self-employed across countries in Europe. The estimates are derived using the consumption method developed by Pissarides & Weber (1989) and the data from the 2010 wave of the harmonised EU Household Budget Survey. The estimations show that the share of income not reported by the selfemployed is relatively large in many European countries, although with substantial variation across the countries. There is some regional clustering, but the shares of underreporting appear not to be related to the development level of the countries. The results are robust to changes in the model specification, the estimation method, and the choice of instruments, but are somewhat sensitive to sample restrictions and the criterion used to define self-employed households.
JEL Codes: H26, E21, E26, H24
Keywords: income underreporting, self-employment, EU countries, household budget surveys
The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank, the European Central Bank or the Eurosystem.