General Concepts
The household electricity approach follows the general idea that electrical consumption and GDP can help to estimate the size of a country's hidden market; however, the household electricity approach makes several diversions from the previous works for enhanced utility, particularly for transitionary countries. The first of these was the decision to limit the concept of the informal market. Lacko limits the informal market to non-registered activities that consume household electricity. This excludes hidden activities such as bribes and many illegal activities (Lacko 1998, p. 132). By doing this, Lacko limited the magnitude of the data collecting process. Lacko also chose not to measure national electrical consumption; instead, the effort was centered on household electrical consumption (Lacko 2000, p. 361). This, in particular, would capture businesses within the informal market that were operating from a homestead. These businesses have been considered to be a traditional and rather large component of the informal economies of Eastern Europe. Additionally, Lacko presumed that household electrical consumption would not be as dramatically affected by structural changes caused by transitionary experiences such as those of the former Soviet bloc countries.
Lacko’s method begins with the basic premise that each household’s electrical consumption should be associated with a portion of the informal market (Lacko 1999, p. 161).This is determined by using time-series cross sections of each country. Within this method there are three proxy variables to be studied: tax/GDP ratio, the inactive/active labor ratio and the ratio of public social welfare expenditures (Lacko 2000, p. 362). For Lacko’s original study the parameters were focused around estimates of cross-sections from nineteen OECD countries in 1990, nineteen OECD countries in 1989 and panel data for 1989-1990(Lacko 2000, p. 362). The final determinization was completed by subtracting residential electrical consumption from the actual amount of electrical consumption (Lacko 2000, p. 362).
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