A Fuzzy Logic Approach to Modelling the Underground Economy

Robert Draeseke () and David Giles

No 9909, Econometrics Working Papers from Department of Economics, University of Victoria

Abstract: The availability of data for the size of the "Underground Economy" is important for macroeconomic policy. We use fuzzy set theory and fuzzy logic to construct an annual time-series for the (unobservable) New Zealand underground economy over the period 1968 to 1994. Two input variables are used - the effective tax rate and an index of the degree of regulation. The resulting underground economy time-series is compared with one previously constructed by the second author using a structural "Multiple Indicators, Multiple Causes" (MIMIC) model. The two approaches each yield sensible, but somewhat different, pictures of the New Zealand underground economy over this period. The fuzzy logic approach to this measurement problem involves several subjective judgements, but our results are quite robust to these choices.

Keywords: underground economy; tax evasion; fuzzy logic; fuzzy sets (search for similar items in EconPapers)
JEL-codes: C5 H1 H2 (search for similar items in EconPapers)
Pages: 6 pages
Date: 1999-07-23
Note: ISSN 1485-6441
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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