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A fuzzy model to estimate the size of the underground economy applying structural equation modeling


  • Mostafa Tahmasebi

    (CREG, Université de Grenoble)

  • Michel Rocca

    (CREG, Université de Grenoble)


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.

Suggested Citation

  • Mostafa Tahmasebi & Michel Rocca, 2015. "A fuzzy model to estimate the size of the underground economy applying structural equation modeling," Journal of Applied Economics, Universidad del CEMA, vol. 18, pages 347-368, November.
  • Handle: RePEc:cem:jaecon:v:18:y:2015:n:2:p:347-368

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    More about this item


    underground economy; structural equation modelling; fuzzy linear regression; estimation methods.;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy


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