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A Fuzzy Model to Estimate the Size of the Underground Economy Applying Structural Equation Modeling

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  • Mostafa Tahmasebi
  • Michel Rocca

Abstract

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, Taylor & Francis Journals, vol. 18(2), pages 347-368, November.
    • Handle: RePEc:taf:recsxx:v:18:y:2015:i:2:p:347-368
    DOI: 10.1016/S1514-0326(15)30015-5
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    Cited by:

    1. Sarsen Zhanabekov, 2022. "Robust determinants of the shadow economy," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1017-1052, October.
    2. Hoda Zobeiri & Zahra Poulaei, 2023. "Does political capital make a difference in GDP per capita? A fuzzy logic to estimate the political capital index," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 919-932, February.

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