Estimating the Income under-Reporting of Self-Employed Households in Iran

Document Type : Research Paper


1 Faculty Member, Institute for Management and Planning Studies

2 University of Illinois at Urbana Champaign (UIUC) Post-doc Researcher, UIUC University, USA

3 PhD. Student, Bu-Ali Sina University Hamedan


In this study, the extent of self-employed households' income under-reporting is estimated based on the expenditure approach, using household budget data. In this regard, the Engel curve of wage earners, which represents the relationship between their income and food expenditures, is used to estimate the true income of self-employed households based on their stated food expenditures. Through this approach, the average under-reporting of self-employed households during 2000 to 2019 equals 8.5 percent of their total income. By examining under-reporting among different groups of jobs, it can be observed that the highest under-reporting is among the "agriculture, forestry and fishery skilled workers" and "legislators, high-ranking officials and managers". Then, in order to study the temporal under-reporting behavior, it is estimated separately for different years. The results show an ascending trend in the extent of under-reporting during 2004-2010, in a way that this extent reaches its highest point in 2010.
JEL Classification: C8, E21, H26, J3


1. خلعتبری، فیروزه (1369). اقتصاد زیرزمینی، مجله رونق، 5-11.
2. زاهدیان، علیرضا (1393). تعدیل خطای کم‌گویی درآمد در برآورد توان پس‌انداز خانوارها به‌وسیله‌ی تحلیل رگرسیونی، مجله‌ی بررسی‌های آمار رسمی ایران، 19-29.
3. علی‌اکبری صبا، روشنک، زاهدیان، علیرضا و اربابی، مرضیه (1394). روشی برای برآورد خطای اندازه‌گیری درآمد، مجله علوم آماری، ۹ (۱) :۷۷-۱۰۰.
4. معاونت بررسی‌های استراتژیک نهاد ریاست جمهوری (1376). اقتصاد زیرزمینی در جمهوری اسلامی ایران، مجله بولتن اقتصادی.
5. Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax compliance. Journal of economic literature, 36(2), 818-860.
6. Besim, M., & Jenkins, G. P. (2005). Tax compliance: when do employees behave like the self-employed?. Applied Economics, 37(10), 1201-1208.
7. Cabral, A. C. G., Gemmell, N., & Alinaghi, N. (2019). Are survey-based self-employment income underreporting estimates biased? New evidence from matched register and survey data. International Tax and Public Finance, 1-39.
8. Cagan, P. (1958). The demand for currency relative to the total money supply. Journal of political economy, 66(4), 303-328.
9. Clotfelter, C. T. (1983). Tax evasion and tax rates: An analysis of individual returns. The review of economics and statistics, 363-373.
10. Dilnot, A., & Morris, C. N. (1981). What do we know about the black economy?. Fiscal Studies, 2(1), 58-73.
11. Engström, P., & Holmlund, B. (2009). Tax evasion and self-employment in a high-tax country: evidence from Sweden. Applied Economics, 41(19), 2419-2430.
12. Feinstein, J. S. (1991). An econometric analysis of income tax evasion and its detection. The RAND Journal of Economics, 14-35.
13. Feldman, N. E., & Slemrod, J. (2007). Estimating tax noncompliance with evidence from unaudited tax returns. The Economic Journal, 117(518), 327-352.
14. Friedman, M. (1957). Theory of the consumption function. Princeton: Princeton University Press.
15. Hanousek, J., & Palda, F. (2006). Problems measuring the underground economy in transition 1. Economics of Transition, 14(4), 707-718.
16. Hurst, E., Li, G., & Pugsley, B. (2014). Are household surveys like tax forms? Evidence from income underreporting of the self-employed. Review of economics and statistics, 96(1), 19-33.
17. Johansson, E. (2005). An estimate of self-employment income underreporting in Finland. Nordic Journal of Political Economy, 31(1), 99-109.
18. Lyssiotou, P., Pashardes, P., & Stengos, T. (2004). Estimates of the black economy based on consumer demand approaches. The Economic Journal, 114(497), 622-640.
19. Mincer, J. (1974). Schooling, Experience, and Earnings. Human Behavior & Social Institutions No. 2.
20. Pissarides, C. A., & Weber, G. (1989). An expenditure-based estimate of Britain's black economy. Journal of public economics, 39(1), 17-32.
21. Rajapakse, S. (2011). Estimation of a complete system of nonlinear Engel curves: further evidence from Box–Cox Engel curves for Sri Lanka. Applied Economics, 43(3), 371-385.
22. Schmutz, F. (2018). Income underreporting by the self-employed in Switzerland: An international comparison. FinanzArchiv: Public Finance Analysis, 74(4), 481-534.
23. Schneider, F., & Enste, D. H. (2000). Shadow economies: Size, causes, and consequences. Journal of economic literature, 38(1), 77-114.
24. Schuetze, H. (2002). Profiles of tax noncompliance among the self-employed in Canada: 1969-1992. Canadian Public Policy, 2419-2430.
25. Slemrod, J. (1985). An empirical test for tax evasion. The Review of Economics and Statistics, 232-238.
26. Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. The Journal of Economic Perspectives, 25-48.
27. Tedds, L. M. (2010). Estimating the income reporting function for the self-employed. Empirical Economics, 669-687.
28. Thomas, J. (1999). Quantifying the black economy: 'Measurement without theory' yet again. The Economic Journal, 381-389.