The impact of economic shadowing on social development: challenges for macroeconomic stability

Abstract

Purpose. To develop a model of investigating the link between the level of shadow economy and indicators of social development of the country. Methodology. The study of the relationship between the analyzed indicators was conducted using general and special research methods. The established hypotheses were tested using VAR/VEC modeling. Dickey-Fuller test, the Phillips-Perron test, Joansen test are used in the work. Findings. The paper identifies the risks of the shadow economy for social indicators of macroeconomic stability. Based on the analysis of the countrys social development indicators, indicators were identified that are most sensitive to changes in the level of the shadow economy which are: Gini coefficient, average income ratio of 10% of the richest to 10% of the poorest, average income ratio of 20% of the richest to 20% of the poorest sections of the population, Human Development Index, gross average wage. The EU countries and Ukraine are identified as the statistical base of the study and the assessment period is 20052020. The results of modeling proved the relationship between the level of shadow economy and indicator of social development. Originality. The approach to assessing the relationship between the level of the shadow economy and indicators of social development of the country by considering the indicators that most fully characterize the level of social protection and material well-being of the population has been improved. Practical value. The scientific contribution of the paper is that existing research on the impact of shadow economy on the level of social development of the countries remains fragmented, as well as studies assessing its effect on the macroeconomic stability. The impulse response function constructed by the authors may provide some insight into better understanding of the indicators of social development, the most sensitive to the shadow economy shocks. The results of estimation can be used for practical or scientific purposes.