Estimation of the size of the underground economy in Turkey: An ecometric approach

ABSTRACTMaster of Degree With ThesisEstimation of the Size of the Underground Economy:An Econometric ApproachNüket KırcıDokuz Eylül UniversityInstitute of Social SciencesDepartmant of EconometricsUnderground economy was started to be discussed as an importanteconomic and social issue in the Western Economies and in the U.S.A. duringthe 1960?s. In the 1980?s it became a problem that was being discussed in all theeconomies worldwide. In our country, it first found its place on the economicagenda in the early 1990?s. Increases in the size of the underground economygive rise to the budget deficits via falling total tax revenues. Because it alsocauses large biases in the estimates of various economic indicators, it alsoreduces efficiencies of the monetary and fiscal policies.As is well known, because of the very nature of it, it is difficultmeasuring underground economy. Although this is the case, various scientificmethods were developed to estimate the size of it. All of the work based on thedirect or indirect estimation methods show that underground economy is in anincreasing trend in Turkey. In this study was used as estimation methodcurrency demand and MIMIC model approach.To be able to obtain correct and reliable estimates of the size of theunderground economy, it is necessary to consider interrelationships amongst allthe factors which causes and helps growth of the underground economy. Thecauses of underground economy must be understood and determined correctly,since the measures that will be taken to reduce it have of course to be chosenaccording to them. To be able have strong, effective and healthy economicpolicies and to apply them without causing social crises depends throughly onthe correct estimation of the size of the underground economy.1- Underground Economy2- Currency Demand Approach3- Structural Equation Models4- MIMIC Model5- LISREL