4. The data
To test the main implications of the model we use the Bank of
Italy's SHIW, which allows us to construct an index of underground
activities based on microeconomic information. SHIW is a biannual
cross-section of about 8000 households and 24,000 individuals, and
provides detailed information on demographic variables, income,
consumption, and wealth. Survey data are available from 1977, but
the main variable of interest for this paper is available only in 1995,
1998, 2000, 2002 and 2004. We exclude individuals who do not
report years of contributions, are not part of the labor force, or who
work in the agricultural or public sectors. Our final sample includes
11,781 observations.