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A fuzzy logic approach to modeling the underground economy in Taiwan

Author

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  • Yu, Tiffany Hui-Kuang
  • Wang, David Han-Min
  • Chen, Su-Jane

Abstract

The size of the ‘underground economy’ (UE) is valuable information in the formulation of macroeconomic and fiscal policy. This study applies fuzzy set theory and fuzzy logic to model Taiwan's UE over the period from 1960 to 2003. Two major factors affecting the size of the UE, the effective tax rate and the degree of government regulation, are used. The size of Taiwan's UE is scaled and compared with those of other models. Although our approach yields different estimates, similar patterns and leading are exhibited throughout the period. The advantage of applying fuzzy logic is twofold. First, it can avoid the complex calculations in conventional econometric models. Second, fuzzy rules with linguistic terms are easy for human to understand.

Suggested Citation

  • Yu, Tiffany Hui-Kuang & Wang, David Han-Min & Chen, Su-Jane, 2006. "A fuzzy logic approach to modeling the underground economy in Taiwan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 471-479.
  • Handle: RePEc:eee:phsmap:v:362:y:2006:i:2:p:471-479
    DOI: 10.1016/j.physa.2005.08.002
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    References listed on IDEAS

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    1. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    2. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
    3. Rajat Deb & Manabendra Dasgupta, 1996. "Transitivity and fuzzy preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 13(3), pages 305-318.
    4. repec:dau:papers:123456789/1888 is not listed on IDEAS
    5. Massimo Bordignon & Alberto Zanardi, 1997. "Tax Evasion in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 56(3-4), pages 169-210, December.
    6. Gregory Richardson, 1998. "The structure of fuzzy preferences: Social choice implications," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 15(3), pages 359-369.
    7. Draeseke, Robert & Giles, David E.A., 2002. "A fuzzy logic approach to modelling the New Zealand underground economy," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 59(1), pages 115-123.
    8. Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
    9. Ihrig, Jane & Moe, Karine S., 2004. "Lurking in the shadows: the informal sector and government policy," Journal of Development Economics, Elsevier, vol. 73(2), pages 541-557, April.
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    11. Kunal Sengupta, 1999. "Choice rules with fuzzy preferences: Some characterizations," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 16(2), pages 259-272.
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    Cited by:

    1. repec:eut:journl:v:19:y:2015:i:1:p:91 is not listed on IDEAS
    2. Soheila Kaghazian & Isa Zaghi Jojadeh & Yazdan Naghdi, 2015. "Underground Economy Estimation in Iran by Mimic Method," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 90-109.
    3. Günçavdi, Öner & Küçük, Ali Erhan, 2013. "Investment expenditure and capital accumulation in an inflationary environment: The case of Turkey," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 554-571.

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