A Fuzzy Model to Estimate the Size of the Underground Economy Applying Structural Equation Modeling

Mostafa Tahmasebi and Michel Rocca

Journal of Applied Economics, 2015, vol. 18, issue 2, 347-368

Abstract: The underground economy is an ambiguous concept: the literature presents a wide variety of definitions about it; the activities it encompasses are mobile and dynamic; and its structure has displayed several variations as time goes by. The present work aims to estimate a fuzzy number (a possible interval) for the size of the underground economy by applying structural equation modelling with fuzzy data. The proposed fuzzy model applied here involves two main steps, changing the structural equation model to a reduced form, then making a nonlinear model from reduced-form equations applying fuzzy linear regression concepts and solutions. Finally, the time series of the underground economy are obtained using the GAMS mathematical optimization software and compared with the findings of two MIMIC models and a microeconomic method.

Date: 2015
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DOI: 10.1016/S1514-0326(15)30015-5

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