Using Electricity Demand to Estimate State-Level Underground Economic Activity in the US
Ellis B. Heath, Luke R. Jones

Abstract
This paper estimates underground economic activity in the US at the state-level from 1998–2010. Previous studies rely on direct methods for estimating underground economies, such as surveys or audits, or indirect methods such as money demand. These methods have serious drawbacks in that they either systematically underestimate underground economic activity or are prone to substantial error. The physical input approach is a potentially more accurate way of measuring underground activity that has received little attention in the literature. This paper reports on an innovative application of the physical input method – electricity demand – to establish a state ranking of underground economic activity and to estimate state and US underground economy.

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