Abstract
We propose a compact analytical model for estimation of the size of hidden economy (H), using two input variables: total electricity consumption in the country and the gross domestic product.An analytical expression has been obtained for H, as explicit function of n (year), and two parameters: H(0) (the size of hidden economy in the base year (n=0)), and the parameters μ (the elasticity for electricity consumption with respect to the gross domestic product) and r (relative efficiency of the hidden economy compared to the regular economy).We show that the size of hidden economy can be effectively estimated based on the variations of energy consumption. Using the results for the case of Macedonia we identify several oscillations attributed to dramatic events and suggest policy approach responding to external shocks generating hidden economy rather that to generally adopted factors (e.g. taxation).
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