The Magnitude and Nature of the Shadow Economy in Ukrainian Border Regions

Abstract

The peculiarities of the formation and functioning of the shadow sector of economy of the border regions of Ukraine have been considered. It has been substantiated the importance of studying the nature of the emergence of the shadow economy and finding the effective tools for leveling the preconditions for its development.The main regularities and indicators of the emergence and growth of the shadow economy have been outlined. Among them there are the levels of tax burden and social protection, regulatory measures, the quality of social services, the number of self-employed, etc. It is substantiated that the important direction of reducing the shadowing of economic processes is to stimulate the socio-economic development of territories. Positive tendencies of economic development, availability of sufficient opportunities for employment and obtaining decent remuneration for their work, etc., suspend the processes of shadowing in the economy of any country and its regions.The level of the shadow economy has been estimated based on direct and indirect approaches. It has been found that given the importance of retail trade in the economy of the border regions (borderline location, active participation of local residents in the local border traffic, more significant share of services, etc.) and relatively lower levels of socio-economic development, the share of unaccounted economic activity in the official economy of the territories is higher compared to its average in the country.The results of an expert survey of representatives of local authorities on the issues of socio-economic development of the border areas under the terms of the EU-Ukraine Association Agreement have been presented. In particular, the main reasons for the shadowing of the economy, types of economic activity in which the share of economic activity, which is in the "shadow", is the highest, etc. have been outlined.It has been revealed that the illegalization of economic activity and population’s income in the medium- and long-term time period creates preconditions for the outflow of production factors (including the workforce) abroad and reduces investment attractiveness of Ukrainian border territories. In addition, the negative impact of border trade is strengthened by forming of substantial dependence on import of certain types of goods, discouraging the development of domestic production; by avoiding the payment of taxes and therefore — the shortfall in revenues to local budgets, etc.

Evaluation of the Level of Shadow Economy in Lithuanian Regions

“…Previous findings concerning the main determinants of the shadow economy in regions are reviewed in Table 1. As it can be seen in Table 1, the determinants of the shadow economy may vary from region to region, although some general tendencies can be envisaged: many authors highlight the significance of taxation (Bilonizhko, 2006;Tafenau et al, 2010;Buehn, 2012;Polovyan, 2015;Gonzalez-Fernandez & Gonzalez-Velasco, 2015;Gasiūnas, 2018;Remeikiene et al, 2018;Davydova et al, 2020), standard of living (Kireenko et al, 2017;Remeikiene et al, 2018), labour market (Bilonizhko, 2006;Tafenau et al, 2010;Buehn, 2012;Vorobyev, 2015;Buček, 2017;Prytula et al, 2019), institutional factors (Polovyan, 2015) and corruption (Vorobyev, 2015;Borlea et al, 2017;Gillanders & Parviainen, 2018). Nevertheless, the results of some studies are contradictory, for instance, Buček's (2017) study found no evidence to prove the importance of particular types of taxes (e.g.…”