Policy Papers

• 24.06.2001

  Fiscal and regulatory causes of Ukraine's shadow economy

  (Code:Q3)

  A model of Ukrainian shadow economy money demand is estimated that includes new regulatory burden, tax complexity, and soft-budget constraint variables. This model is analyzed to determine the causes and dynamics of the Ukrainian shadow economy and to assess the effectiveness of state measures undertaken to reduce its size. We find the direct tax burden including social security contributions, the regulatory burden on enterprises, the complexity of the tax system, and soft-budget constraints for enterprises to be important causes for unofficial activity. We conclude that the lowering of the social security burden, the introduction of a presumptive tax for small and medium-sized businesses, and some hardening of budget constraints for enterprises are the main explanatory factors for the estimated decline of the shadow economy since recently.

  Attached file  (118.7 kb)
  Authors:  Thießen Ulrich, Vakhnenko Tetyana, Mel'ota Iryna
  Tags:  German Advisory Group, shadow economy
  Research spheres:  International economics, Fiscal and Social Policy