Regional Estimates of Shadow Economy in Lithuania

Abstract

The aim is to estimate the level of shadow economy in the regions of Lithuania during the year of 2012-2016 after having identified causal factors in this article. The topic is very relevant to such countries of transition economy like Lithuania, where huge separation exists between regions and big cities. Deeper social problems in regions, lack of job places, absence of investments and emigration to bigger cities of a country or abroad create conditions for the growth of criminal offenses and shadow economy. Performed calculations under MIMIC model have shown that the share of indirect taxes, average income, the cases of cigarette smuggling, population of women per 1000 men, the number of criminal offence, children in social risk families and the number of tourists are the main causes for the emergence and growth/decline of shadow economy level. The novelty of the article is that the calculations reveal a significantly higher level of shadow economy in the regions, than at the country level, therefore it is recommended to make calculations at the regional level in order to select measures to more effectively fight with the shadow. Identified reasons allow formulating the following recommendations for responsible authorities: increase efficiency in tax system, since current excise tax policy has a positive impact on the level of poverty, especially at regional level, deepening of social problems, which as a result contribute to the growth of shadow economy; encourage women’ occupancy, emancipation and attract funding from national and international projects, to promote equal rights in researched regions; increase the level of attractiveness and security level in cities, promote FDI to cities, and effectively use money from EU Structural Funds.DOI: http://dx.doi.org/10.5755/j01.ee.29.4.19438