The availability of date for the size of the underground economy is
important for macroeconomic policy. We use fuzzy set theory and fuzzy logic lo construct an annual time-series for the (unobseIVable) Iran underground
economy over the priod 1343 to 1378. Two input variables are used - the effective lax rate and an index of the degree of regulation. The resulting
constructed by the second author using a structural Multiple lndicators,
Multiple Causes (MIMIC) model. The tow approaches each yield sensiblt, but
somewhat different, pictures of the Iran underground economy over this
period. The fuzzy logic approach to this measurement problem involves
several subjective judgement, but our results are quite robust to these choices.