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A Fuzzy Logic Approach to Modelling the Underground Economy

  • Robert Draeseke

    ()

  • David E. A. Giles

    ()

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.

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Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 9909.

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Length: 6 pages
Date of creation: 23 Jul 1999
Date of revision:
Handle: RePEc:vic:vicewp:9909
Note: ISSN 1485-6441
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Web page: http://web.uvic.ca/econ

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  1. Lindstrom, Tomas, 1998. "A fuzzy design of the willingness to invest in Sweden," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 1-17, July.
  2. Gregory Richardson, 1998. "The structure of fuzzy preferences: Social choice implications," Social Choice and Welfare, Springer, vol. 15(3), pages 359-369.
  3. Patrick J. Caragata, & David E. A. Giles, 1998. "Simulating the Relationship Between the Hidden Economy and the Tax Level and Tax Mix in New Zealand," Econometrics Working Papers 9804, Department of Economics, University of Victoria.
  4. David E. A. Giles, & Patrick J. Caragata, 1999. "The Learning Path of the Hidden Economy: The Tax Burden and Tax Evasion in New Zealand," Econometrics Working Papers 9904, Department of Economics, University of Victoria.
  5. David E. A. Giles, 1999. "Modelling the hidden economy and the tax-gap in New Zealand," Empirical Economics, Springer, vol. 24(4), pages 621-640.
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