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The size of the ‘underground economy’ (UE) is valuable information in the formulation of macroeconomic and fiscal policy. From a scientific point of view analysis of the UE is faced with severe data problems because underground activities are not recorded and anyone engaged in it has an incentive to hide them. This paper estimates the size of the Croatian underground economy by applying novel methodological approach: fuzzy logic. Two major factors affecting the size of the UE, unemployment rate and number of registered business subjects, are used. Results provide insight into movement of Croatia`s UE in the last 10 years.