A Fuzzy Logic Metod to Modelling the Shadow Economy For Iran(period 1964 to 2005

Shadow Economic activities are a fact of life around the world The availability of data for the size of the Shadow Economy is important formacroeconomic policy. We use fuzzy set theoryand fuzzy logic to construct an annual time-series for the (unobservable) Iran Shadow economy overthe period 1964 to 2005. Two input variables are used – the effective tax rate and an index of the degree of regulation. The resulting Shadoweconomy time-series is compared with onepreviously constructed by the second author using a structural Multiple Indicators, Multiple Causes(MIMIC) model. The two approaches each yieldsensible, but somewhat different, pictures of the Iran Shadow economy over this period. The fuzzylogic approach to this measurement probleminvolves several subjective judgments, but our results are quite robust to these choices

Keywords:

shadow economy , tax burden , regulation. fuzzy logic