This study provides an estimate of the size of the informal economy in the Nether­ lands in the period 1965-1982. In this study the informal economy has been defined statistically as that part of the non-registered national product which involves monet­ ary transactions. Bartering activities and transactions outside the market are thus left completely out of consideration. The same is true of those market transactions which, despite their illegal or underground nature, are already included in the national pro­ duct published by the Central Bureau of Statistics (CBS) because of its measuring methods. According to the CBS (1983a) these transactions account for 5 to 10% of national income. This means that the estimate of the informal economy will be smal­ ler when the statistical registration is more comprehensive and a wider starting point is chosen than the market. The term underground economy as used in a fiscal context therefore means something else than the statistical term informal economy used in this study I. The phenomenon of the informal economy emanates partly from the usual measuring conventions; at the same time it is also an expression of economic behav­ iour motivated by economic incentives and conditions which aims to keep such econ­ omic dealing concealed. This study attempts to quantifY the size of that informal economy partly on the basis of economic behaviour. Observable monetary trans­ actions were the main starting point.

Acknowledgements The work underlying this study was performed at the Econometric and Special Studies Department of the Nederlandsche Bank, where many contributed to it. I am indebted to all the statistical assistants of the department, especially to Anja Wouters and Rob Vet for their patient assistance in building up the data sets and analysing the survey data. Also Corina den Broeder rendered devoted and persistent research assistance with respect to the multicountry analysis during her stay at the Bank and I am grateful to Mike Clements of the Bank of England for his careful reading and commenting on that part. My collegues Peter van Els and Carlo Winder made some valuable suggestions. Liesbeth Klein and Coen Collee helped me avoid a number of errors in English, and thanks to the skilful efforts of Marietta Bakker, Gita Gajapersad and Carolien Verhoeven the text looks as it does. Above all, lowe a debt of gratitude to Martin Fase, one of the pioneers in this field of research, for his efforts and contribution to the improvement of this study. INTRODUCTION We seem to be well on the way to a cashless society. Paradoxically, however, the majority of the transactions are still paid in cash even in the most advanced economies. A second paradoxical observation is that, despite the primary and common character of currency, the economic theory on the use of and demand for cash is only rarely supported by empirical evidence.

This study provides an estimate of the size of the informal economy in the Nether­ lands in the period 1965-1982. In this study the informal economy has been defined statistically as that part of the non-registered national product which involves monet­ ary transactions. Bartering activities and transactions outside the market are thus left completely out of consideration. The same is true of those market transactions which, despite their illegal or underground nature, are already included in the national pro­ duct published by the Central Bureau of Statistics (CBS) because of its measuring methods. According to the CBS (1983a) these transactions account for 5 to 10% of national income. This means that the estimate of the informal economy will be smal­ ler when the statistical registration is more comprehensive and a wider starting point is chosen than the market. The term underground economy as used in a fiscal context therefore means something else than the statistical term informal economy used in this study I. The phenomenon of the informal economy emanates partly from the usual measuring conventions; at the same time it is also an expression of economic behav­ iour motivated by economic incentives and conditions which aims to keep such econ­ omic dealing concealed. This study attempts to quantifY the size of that informal economy partly on the basis of economic behaviour. Observable monetary trans­ actions were the main starting point.

Acknowledgements The work underlying this study was performed at the Econometric and Special Studies Department of the Nederlandsche Bank, where many contributed to it. I am indebted to all the statistical assistants of the department, especially to Anja Wouters and Rob Vet for their patient assistance in building up the data sets and analysing the survey data. Also Corina den Broeder rendered devoted and persistent research assistance with respect to the multicountry analysis during her stay at the Bank and I am grateful to Mike Clements of the Bank of England for his careful reading and commenting on that part. My collegues Peter van Els and Carlo Winder made some valuable suggestions. Liesbeth Klein and Coen Collee helped me avoid a number of errors in English, and thanks to the skilful efforts of Marietta Bakker, Gita Gajapersad and Carolien Verhoeven the text looks as it does. Above all, lowe a debt of gratitude to Martin Fase, one of the pioneers in this field of research, for his efforts and contribution to the improvement of this study. INTRODUCTION We seem to be well on the way to a cashless society. Paradoxically, however, the majority of the transactions are still paid in cash even in the most advanced economies. A second paradoxical observation is that, despite the primary and common character of currency, the economic theory on the use of and demand for cash is only rarely supported by empirical evidence.