We re-examine the size of the underground economy in the U.S. between 1972 and 2006, after properly adjusting for several statistical issues relating to its estimation. The dynamic error-correction-based currency demand approach confirms that income tax rates have no contemporaneous effect on...

Standard serial correlation tests are derived assuming that the disturbances are homoscedastic, but this study shows that asympotic critical values are not accurate when this assumption is violated. Asymptotic critical values for the ARCH(2)-corrected LM, BP and BL tests are valid only when the...