Investigation the factors affecting the unrecorded economy by Kalman filter method (state –space approach)

In this paper we estimate the unrecorded economic activity in Iran during 1350-1400 by Kalman filter technique (state –space approach). In the model used in this paper, the unrecorded economic activity is considered as an unobserved process that depends on regulatory quality, control of corruption, size of government, income tax, population, etc. and affects cash in circulation and energy consumption. In Iran the findings suggest that unrecorded economic activity in Iran has increased sizably the years under review especially in recent years. Furthermore, we saw that control of corruption has a negative and significant effect and regulatory quality has a negative and significant effect and size of government has positive and significant effect and income tax has a positive and significant effect and population has a positive and significant effect on size of unrecorded economic activity.