A fuzzy logic approach to modelling the New Zealand underground economy

  • Authors:

  • Robert Draeseke;David E. A. Giles

  • Affiliations:

  • Department of Economics, University of Victoria, P.O. Box 1700, STN CSC, Victoria, BC, Canada V8W 2Y2;Department of Economics, University of Victoria, P.O. Box 1700, STN CSC, Victoria, BC, Canada V8W 2Y2

  • Venue:
  • Mathematics and Computers in Simulation - Selected papers of the MSSANZ/IMACS 13th biennial conference on modelling and simulation, Hamilton, New Zealand, December 1999
  • Year:
  • 2002

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Abstract

The availability of data for the size of the "underground economy" (UE) is important for macroeconomic policy. We use fuzzy set theory and fuzzy logic to construct an annual time-series for the (unobservable) New Zealand UE over the period 1968-1994. Two input variables are used--the effective tax rate and an index of the degree of regulation (REG). The resulting UE 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 UE over this period. The fuzzy logic approach to this measurement problem involves several subjective judgements, but our results are quite robust to these choices.