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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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    Cited by:

    1. Mohammad Hossien Pourkazemi & Mohammad Naser Sherafat & Delfan Azari, 2015. "Modeling Iran`s Underground Economy: A Fuzzy Logic Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 19(1), pages 91-106, Winter.
    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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