Shadow Economic Activity Research Articles

Asymmetric Nexus Between Shadow Economy and Financial Instability: Does Institutional Quality Matter?

Policymakers worldwide, especially central banks, are concerned about the causes and remedies of financial instability. This study examines the asymmetric influence of the shadow economy on financial instability. Moreover, the study analyzes the moderating role of institutional quality in the shadow economy and financial instability nexus. This study used novel econometric techniques, including RALS-ADF and RALS-LM unit root tests, RALS-Fourier ARDL, NARDL, and single Fourier-Toda and Yamamoto causality tests, using yearly data from 1984-2020 for Turkey. Specifically, a positive shock to IQ declines financial instability, while a negative shock to IQ promotes it. Further, the negative shock to SE lessens the financial instability. Moreover, the negative shock to the interaction term implies that the shadow economy outweighs the IQ (depending on the level of IQ) in its effect in the case of Turkey, i.e., even if IQ increases (which usually decreases financial instability), the increasing SE has a dominant effect, and eventually upsurges financial instability. Additionally, in line with the institutional failure hypothesis, the negative shock to interaction term leads to a substantial increase in financial instability. Finally, the findings showed a one-way causality that runs from economic growth to financial instability and bidirectional causality between SE and GDP. The government should reduce shadow economic activities in the economy by enhancing IQ, which can increase government revenue and reduce financial instability.

Analisis Persepsi Karyawan Pada Penerapan Undang-Undang Nomor 7 Tahun 2021 Tentang Harmoni Sasi Peraturan Perpajakan (Studi Persepsi Karyawan WNJ.ID tentang Penggunaan Nomor Induk Kependudukan (NIK) Sebagai Nomor Pokok Wajib Pajak (NPWP))

Tax, which is defined as a contribution to the state that can be enforced through law, has two functions, namely the budgetary function and the regular function. As a budgetary function, taxes act as a source of state revenue, which can then be used to finance state activities. Therefore, the size of the tax that can be collected has very important implications for the number and quality of activities that can be carried out by the state. The tax ratio in Indonesia is low because Indonesian citizens are less aware of registering with the Tax Service Office (KPP) and obtaining a Taxpayer Identification Number (NPWP), so that there are many economic activities that should be tax objects but are difficult or cannot be detected by the tax authorities. The growing shadow economy activities can cause state losses, because shadow economy actors are generally separated from the tax authorities, thus eliminating the obligation to pay taxes. The taxation system in Indonesia which is self-assessment in nature encourages taxpayers to have self-awareness to report and pay their tax obligations in their role and support state revenues in order to achieve the common welfare of the people. To report and pay tax obligations, taxpayers must have a Taxpayer Identification Number (NPWP) as tax identity. Taxpayer Identification Number (NPWP) is a number given to taxpayers as a means in tax administration which is used as personal identification or Taxpayer identity in carrying out their tax rights and obligations, Taxpayer Identification Number (NPWP) is a means in tax administration which used as personal identification or taxpayer identity, each taxpayer is only given one taxpayer identification number. Taxpayer identification numbers are also used to maintain order in tax payments and in supervising tax administration, so that taxpayers' Taxpayer Identification Numbers (NPWP) obtain several other direct benefits, such as paying taxes in advance (installments\tax credits) on external taxes. paid when the taxpayer goes abroad, as a requirement when processing a trading business permit (SIUP), and as one of the conditions for creating a checking account at banks, taxpayers who do not register to obtain a taxpayer identification number are subject to witnesses in accordance with the provisions of tax laws and regulations. The survey results show that respondents have a positive perception regarding the benefits of the policy of integrating Population Identification Numbers (NIK) into Taxpayer Identification Numbers (NPWP) in increasing efficiency and ease in processing tax documents, verifying identity, the number of documents that need to be prepared, and access to services. online tax.

Shadow Economy: Determinants and Its Impact on Foreign Direct Investment

The shadow economy poses a significant threat to government revenue and the effectiveness of economic policies. This paper investigates the causes of the shadow economy and its influence on foreign direct investment (FDI). Our study employs the currency demand approach, a component of the indirect method, to identify the determinants of the shadow economy in a dataset covering 105 countries from 2001 to 2017. These countries are categorized into four income groups: high-income, upper-middle-income, lower-middle-income, and low-income. Parameter estimation is conducted using the Generalized Method of Moments (GMM) model, with robustness tests incorporating reference estimates from Partial Least Squares (PLS) and Fixed Effects Model (FEM). Our findings indicate that a higher GDP and lower interest rates are associated with reduced shadow economy activity. Elevated market interest rates increase the cost of funds in the informal sector, discouraging engagement in shadow economic activities due to reduced profitability. Furthermore, higher tax revenues correlate with intensified regulatory enforcement, increasing the risks associated with shadow economy involvement. A larger workforce and lower unemployment rates similarly diminish shadow economy activity. In the context of foreign direct investment (FDI), the shadow economy positively affects FDI flows when formal institutions, including legal frameworks, property rights protection, and regulatory systems, are either weak or overly burdensome. In such scenarios, economic actors may opt for informal channels like the shadow economy, offering a flexible and cost-effective alternative to the formal sector, a crucial consideration for foreign investors.

Control Of Corruption In Moderating The Effect Of Per Capita Income And Shadow Economy On Tax Revenue

The less optimal tax revenue, the low level of income, the large proportion of shadow economy in the economies and the high level of corruption are problems for development. This study tries to revisit the linkage of these four development problems, and find out how corruption control conducted by the government can strengthen or weaken the impact of per capita income and shadow economy activities on tax revenue. A dataset of eighteen countries in the South Asia and Asia-Pacific region from 2002 to 2017 is analyzed using panel data regression. It was found that per capita income and government efforts to control corruption significantly have a positive effect on tax revenue, while the shadow economy significantly has a negative effect on tax revenue. Furthermore, as a moderating variable, government efforts to control corruption can significantly reduce the negative effect of the shadow economy on tax revenue. This finding suggests the urgency of controlling corruption by the government to optimize tax revenue, thereby overcoming development problems.

Asymmetric Effect of Shadow Economy on Environmental Pollution in Egypt: Evidence from Bootstrap NARDL Technique

This study examines the asymmetric effect of shadow economy (SE) on environmental pollution in Egypt during the 1970 and 2022 period. Using the bootstrap nonlinear autoregressive distributed lag (NARDL) bounds-testing approach, the study presents evidence of nonlinear cointegrating relationship between environmental degradation (carbon emission) and shadow economic activities (alongside globalisation, urbanisation, size of economic activity, industrial growth). In addition, the results demonstrate that the impact of shadow economy on environmental pollution (Env) is nonlinear, with the positive shock in shadow economy promoting environmental degradation and negative shocks promoting environmental quality, both in the short- and long-runs. However, the study discovered that the magnitude of the impact of the SE on Env is larger in the short-run. This is further validated by the dynamic nonlinear ARDL simulations technique which demonstrates that the short-run effect of the SE on Env is large. Additionally, the results suggest that income growth, urbanisation, and industrial growth are important drivers of environmental pollution. Therefore, the study recommends the adoption, and most importantly implementation, of policies and strategies geared towards reducing the shadow economy, and consequently environmental pollution.

Влияние цифровизации на теневую экономику сельского хозяйства в Российской Федерации

Introduction: digital transformation of agriculture is multidimensional, encouraging the rise of labor productivity and production efficiency and ensuring high product quality. One of the important manifestations of digitalization is the expansion of traceability and increased transparency of economic and technological processes. In this regard, it is extremely important to assess the digitalization impact on the dynamics of shadow economy of agriculture in Russia, which may be ambiguous. Objectives: to test the hypothesis that the digitalization of agriculture reduces shadow economic activity within it. Methods: panel regression analysis, economic-statistical analysis, comparative analysis. Results: а statistical and econometric method has been developed to assess the digitalization impact of shadow economy of agriculture in the Russian regions. Using the method made it possible to state that at the regional level, telephone network digitalization in rural area contributes to reducing the shadow economy scale, but the impact appears to be weak. Conclusions: the analysis performed suggests that state and local authorities in Russia should continue to pursue the course of digitalization of the country, and this, in turn, will lead to a reduction in the opportunities for shadow economic activity.

Modeling the Shadow Economy. Why Does the Bulgarian Carry out Undeclared Employment?

The shadow economy is a complex phenomenon that impacts all aspects of one country’s economic system. One theory explaining the emergence of the shadow economy holds that it results from the breach of the civil contract and serves as the individual’s response to the inefficiency of the state’s institutions. On its part the shadow economy has a negative impact on the state budget and is able to distort basic indicators such as growth, unemployment, real GDP. That’s why it is important for policy makers to know what the reasons for such behavior are. Using information from a survey of people in all areas of Bulgaria, conducted in early 2020, this article explores the primary causes of Bulgarians’ participation in shadow economic activities, specifically in undeclared labor. Via linear and afterwards probit binary regression the article ascertains each respondent’s inclination to participate in set activities based on their responses to a question asking why they believe some persons in their sector of employment opt to get some of their payment “in hand.” The findings are in favor of authorities and managers, because knowing the main drivers of the shadow economy, they can take measures aimed directly at the causes of such behavior.

Motives underlying the intentions of youth to get involved in bribery: evidence from Lithuania

PurposeThis paper embarks on revealing the main factors behind the intentions of youth in Lithuania to get involved in bribery.Design/methodology/approachA questionnaire survey of 432 respondents served as a source of primary data. The structural equation modelling – partial least squares techniques was employed as a main research tool.FindingsIt was revealed that youth in Lithuania display a high value congruity with their counterparts in Western Europe and a relatively reluctant to offer bribes. It can be stated that youths’ positive attitude towards some shadow economy activities is a forced response to government failures, rather than an intrinsic motivation created by cultural legacy or psychological issues.Originality/valueIt is one of the first scientific attempt to investigate reasons behind the formation of the positive attitude towards bribery and intentions to get involved in bribery among the youth.

The Impact of the Shadow Economy on Tax Revenues in Palestine Between the Years (2000-2021)

This study aimed to identify the reasons that lead to the growth of the phenomenon of the shadow economy, and to estimate its size between the years (2000-2021), and its impact on tax revenues in Palestine. The quantitative approach was used to analyse the annual data of the variables, using the MIMIC Model. The study concluded that the size of the shadow economy in Palestine between the years (2000-2021) was (44.45%) of the gross domestic product, and that there is a negative impact of the shadow economy activities on the tax revenues. A legal framework must be provided to makes it contribute positively to the gross domestic product and national income, and increase investment projects in Palestine that lead to increasing job opportunities and reducing unemployment, which positively affects reducing the size of the shadow economy in Palestine.

Do Different Estimation Methods Lead to Implausible Differences in the Size of Nonobserved or Shadow Economies? A Preliminary Answer

This review evaluates three micro and three macro estimation approaches to determine whether unrealistic differences exist in estimating the size of nonobserved/shadow economies. While some macro-MIMIC estimates are higher than estimates using the statistical discrepancy approach, when adjusting for double-counting, MIMIC approaches provide similar results. Macro approaches usually cover not only typical shadow economy activities, but also voluntary work, do-it-yourself activities, and classical crime activities; by nature, macro approaches will lead to higher and more accurate estimates than micro approaches. However, if certain adjustments are made, the estimated size of the shadow economy using the MIMIC approach comes close to the size of the shadow economy indicated by micro survey approaches. Hence, claims that macro approaches are unrealistically high and rely on unrealistic assumptions must be reconsidered.

THE MAIN DIRECTIONS OF SHADOW ECONOMY MEASUREMENT IN KAZAKHSTAN

The problems of shadow economy development, its place in the national economic system, the ratio of constructive and destructive potential do not lose relevance and still cause active scientific discussions. The need to implement continuous measures to counteract the development of the scale and types of shadow economic activity, as well as the complexity of their application requires the assessment of the shadow economy. Despite the variety of methods to assess the informal economy the problem of identifying the shadow economy based on empirical analysis of the relationship between economic crime and the shadow economy is conducted in few works. The aim of the article is to consider the method of measuring the shadow economy based on crime rates and calculation of the adjusted by The authors give an interpretation of the term "shadow economy" and examine the problems of measuring the economy in the "shadow". As a result of research authors have defined insignificant excess of a monetary turnover over a turnover of official sector. On the basis of the analysis of the statistical data on scales of economic crimes and an estimation of the measures realized by the government of RK for suppression of illegal economic activities it is revealed that the sizes of economic crimes in 2020 in comparison with 2006 have almost in 2 times decreased.

Transformation of the features of the implementation of economic security under the influence of the shadow economy

The purpose of this work is to analyze the transformational processes occurring with the phenomenon of economic security, based on the impact of shadow economic activity. The author of this paper considers the definition of economic security from different positions to reflect the complexity and ambiguity of the phenomenon under consideration. At the same time, it was noted that the essence of economic security lies in the compliance of the results of economic activity with the national economic interests of the state as a whole. The paper considers the key types of indicators that allow assessing the level of economic security of the state, among them: general macroeconomic indicators, basic macroeconomic indicators, partial derivative indicators, private social indicators. The concept associated with indicators is threats, in the context of this scientific work, these are threats to the economic security of the state. The author considered the most probable and dangerous threats to the state economic security. A special place in this scientific work is occupied by the description of shadow economic activity. The author revealed a variety of approaches to the definition and study of shadow economic activity, which allows us to assert the multidimensional nature of the origin of this phenomenon. The paper notes that the shadow economy takes many forms, each of which in its own way has a negative impact on socio-economic processes, including economic security. At the same time, shadow economic processes are in a cyclical state, giving rise to new phenomena, which makes the fight against shadow economic activity difficult. At the end of this scientific work, the author described the negative consequences that arise in the event of the development of shadow economic activity, and also indicated the need for preventive measures by the state.

Độ mở thương mại và nền kinh tế bóng tối ở các nước BRICS: Bộ đôi song hành hay đối nghịch?

This paper examines the impact of trade openness on the shadow economy in the BRICS countries from 1996 to 2018, using Bayesian panel regression. The results indicate that trade openness is effective in reducing the expansion of the shadow economy. Furthermore, when we replaced the measure of trade openness with the trade globalization index from the KOF Globalization Index, the findings remained consistent. Therefore, policies aimed at reducing trade barriers may benefit countries seeking to curb shadow economy activities. Additionally, our findings suggest that per capita income, internet penetration rate, and government effectiveness are also factors that can help reduce shadow economy activities in the BRICS countries.

PRIMARY FACTORS SHAPING UKRAINE’S CUSTOMS AND TARIFF POLICIES AMIDST SHADOW ECONOMY

This study examines Ukraine’s shadow economy, specifically its customs challenges and tariff regulation. In the context of globalization, the study explores methodological enhancements proposed by scholars for measuring the shadow economy and its influencing factors, emphasizing export-import taxation and financial tax mechanisms. The study employs the mirror statistics method to analyze export-import operations and investigates the sectoral structure of taxable imports. Key product categories contributing significantly to shadow economic activity are identified. Customs policies, notably customs undervaluation, and their impact on tax base reduction are discussed. The article addresses the absence of digital indicators, explores methodological improvements, and focuses on export-import taxation. By analyzing sectoral structures and customs policies, the study seeks to enhance our understanding of the shadow economy’s dynamics and its relationship with customs and tariff regulation.

Measuring the size and dynamics of U.S. state-level shadow economies using a dynamic general equilibrium model with trends

We use a two-sector dynamic deterministic general equilibrium model that specifically accounts for trends among time-series variables to estimate the size of the shadow economy for the 50 U.S. states from 1999 to 2019, following Solis-Garcia and Xie (2018, 2022). This paper improves on existing measures of the state-level shadow economy (such as the multiple indicators, multiple causes (MIMIC) methodology by Wiseman (2013a)). In particular, this new measure is based on theoretical foundations, extends the previous measure to include the Great Recession, includes dollar value estimates of the shadow economy, and produces considerably more variation over time and across states. Furthermore, we explore determinants of this new shadow economy measure using a panel vector autoregressive model and find that, on average, states with higher levels of economic freedom, lower regulatory barriers, and larger real GDP have smaller shadow economies. States with bigger governments, on average, have larger shadow economies, and the effect of corruption on shadow economic activity is non-linear, with a positive initial and subsequent negative impact.

Shell and Shadow: Navigate the Hidden Tax in Indonesia and Germany

Reduced tax revenues, distortion of competition, reduced investment, reduced economic growth, and social inequality are serious impacts of the existence of the shadow economy. The existence of shell companies and the shadow economy form a causal relationship. Indications that shell companies are facilitators of shadow economy activities as well as tax avoidance tools become a crucial discussion to find out what should be improved in the context of transparency and supervision. This article aims to establish a view on the existence of shell companies under both Indonesian and German law. This article will explore the definition of shell companies and the implications of different interpretations of shell companies for the formulation of regulations on the shadow economy in Indonesia and Germany and will present an analysis of the existence of shell companies as a form of shadow economy activity that has a negative impact on the country's economy. This issue is the basis for introducing aspects of the strength of tax law in Germany to Indonesia.

Modern methods and tools in counteracting shadow economic activity

This article describes the main approaches aimed at counteracting shadow economic activity. The author considered the existing regulatory framework in the field of combating shadow economic activity, and also determined the role of the state in the process of implementing the policy of countering the expansion of the shadow economy. it was noted that the conduct of a non-centralized policy of control over the shadow sector by the state could lead to serious irreparable consequences. In this case, the state will need to improve the control policy and strengthen measures to combat the shadow economy. The paper considers certain approaches to the fight against shadow economic activity, namely the radical liberal and legal ones. The first approach is aimed at increasing the number of employees of departmental services involved in combating shadow economic activity, while the second one is based on improving the existing legislation in the field of economic activity regulation, in particular, the sanctioning of the shadow economy. The author studied statistical data that reflect the size and scope of the shadow economy by country, as well as by regions of Russia. The paper describes a mechanism for assessing the level of shadow economic activity, while reflecting the shortcomings of modern methodology, which distorts the actual situation in the state, which leads to potential wrong decisions. In the final part of the article, the author suggested that a significant part of the population, against the background of increasing unemployment and a decrease in the general standard of living, have an urgent need for additional earnings, which is provided by the informal sector of the economy.

Genesis and development of shadow economic activity

Within the framework of this scientific article, an analysis is made of the formation and development of a dangerous social and economic phenomenon, namely, shadow economic activity. The author of this work described the process of the genesis of the shadow economy, as well as its further expansion. The paper indicates a number of reasons that first acted as prerequisites for the development of the shadow economy, and then became catalysts for the expansion of shadow economic activity in Russia. The author of the article studied the characteristic features that distinguish the development of shadow economic activity in Russia from a similar process in foreign countries. An important feature of the development of the shadow economy is the uneven distribution of this phenomenon depending on the sphere and sector of the economy. In this regard, in this paper, the main areas of economic activity that are most subjected to shadow processes were considered. The author emphasized that the shadow economy in the course of its development and expansion can lead to negative consequences that affect both the public sector and the activities of enterprises. For a more comprehensive study of the situation with shadow economic activity, this paper analyzed statistical data on employment in the informal sector in Russia in 2021. Based on the results of the analysis, the author found that the spheres of trade, agriculture and construction turned out to be the most popular in terms of informal employment in them. In addition, the author concluded that the shadow economy slows down the activity of all mechanisms related to the economic sphere.

Does the diffusion of information and communication technologies affect the shadow economy in Africa?

AbstractThis paper aims to analyze the effect of information and communication technology (ICT) diffusion on the shadow economic activities in Africa for the period from 2000 to 2015. To this end, we use a panel data model on a sample of 48 countries. The results obtained show that the diffusion of ICTs, especially mobile telephony and the Internet, negatively and significantly affect the size of the shadow economy in Africa. The level of education, capital stock, economic growth, and financial development also contribute to reducing the size of the informal economy in Africa. However, our results suggest that informal activities are motivated by the abundance of natural resources and migrant remittances. Robustness checks are done through the system generalized method of moments and a change in the measurement of the shadow economy confirms the validity of the results. We recommend to decision‐makers to implement public policies facilitating the access and the use of new telecommunications tools and services and to improve the institutional framework to encourage private economic agents to invest in formal activities.

SHADOW ECONOMY IN THE MODERN WORLD

The article is devoted to the shadow economy in the modern world. This phenomenon, inherent in many countries, occurs in command and market economic systems. The shadow sector is one of the most acute problems for the economy of the state, because huge resources are concentrated in the shadow turnover, which can become a source for economic growth, this determines the relevance of the topic under study. There is a lack of a unified approach to the definition of the concept of “shadow economy” due to the versatility of this phenomenon. The structure of the shadow economy is given, as well as the types and features of shadow activity in different countries. The analysis of the state of the shadow economy and its scale in developed, developing and transition economies is presented. In addition, the most common types of economic crimes that are part of shadow activities are considered. The size of the shadow economy of Russia and neighboring countries is compared.The second part of the article is devoted to ways to minimize the shadow economy. Since it is impossible to get rid of this phenomenon, it is necessary to take measures to reduce it. The main methods of combating the shadow sector used in many countries are considered. Specific measures that are applied in countries with the lowest volume of shadow economic activity are given.