We use the demand system approach to estimate the size of informal economy in Turkey
following the methodology based on the analysis of the individual consumption behaviour
proposed by Pissarides, Weber (1989), Lyssiotou et al. (2004), and Fortin et al. (2009).
We extend this method by taking into account both the monetary expenditures and time
spent on domestic activities. The necessary information of money and time inputs in
consumption on the household’s level is obtained by statistical match of Turkish Family
Budget and Time Use surveys (2006). As expected, the estimated model size of the
informal economy in Turkey using the full (time plus money) expenditure is higher than
those obtained by only monetary approach (in average 40.6% and 33.5% of GDP
respectively) and also higher than obtained by more conventional macroeconomic
methods (for example 35.1% by Schneider in 2005 with DYMIMIC model).