An Estimation ofUnderground Economy in Iran Using Indirect Method

Underground Economy (UE) has grown in most countries during the last decades. Although this is not a new phenomenon in economics and could be seen in any economic system, but its size and determinants varies from country to country. It is important to have an idea about it and access to some information about UE to make policies for reducing tax invasion, promoting economic growth and improving income distribution. Macroeconomic indictors in Iran , such as unemployment rate, the gap between income tax and tax capacity, the gap between income and expenditures of household in household surveys and income distribution indexes show that the national accountsare not completely qualified for showing all the economics facts and it is partly due to UE in Iran. In this article we estimate the size of UE in Iran during the 1793-2005periods by using currency demand approach. The results show that average UE size in that period is about 20percent of GDP.