Modeling the Underground Economy in Turkey: Randomized Response and MIMIC Models

MIMIC model and two versions of the Randomized Response (RR) Technique are employed to estimate the size of the underground economy (UE) in Turkey. The RR estimate for 1998 is 28% of ‘measured’ GDP. Over the period from 1970 to 1998, the size of the UE is found to vary between 10% and 45%. The UE faces big drop in the mid-1980s, implying the importance of structural changes in the Turkish economy in reducing the size of UE. All types of burden imposed by government are found to be positively related to the UE. Tax-gap issue is also addressed.