Evaluation of the shadow economy of the Russian Federation with the use of electricity consumption

Abstract
Nowadays, shadow economy researchers are faced with the several problems of the correct estimation of its size. Each method, which is used to measure the proportion of the shadow economy, has its specific problems, connected with its distinctive features. The underground economy estimation method used by Daniel Kaufman and Aleksandr Kaliberda is based on the idea that the shadow economy can be estimated using tools that can be measured with a high level of accuracy (in our case it is electricity consumption). The authors suggest that the electricity-to-GDP elasticity is equal to one, and any deviation from a single elasticity is a sign of a change in the shadow economy. However, principles of the global technology are changing as fast as the culture of the electricity consumption. Based on this, the assumption of the unit elasticity provides biased estimates of the size of the shadow economy. In this paper, we tried to modernize the original approach, step by step, solving the problem of the dynamic component of electricity consumption and we estimate the size of the shadow economy of Russia for 2014-2016.

Keywords
Kaufman and Kaliberda, evaluations of the shadow economy size, electricity-to-GDP elasticity



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