In modern economics, there are several definitions of the concept of “shadow economy”.
The shadow economy is the activity of business entities that contradicts current legislation.
Also, the shadow economy may be represented by unaccounted state statistics and not controlled by state bodies for the production, exchange, consumption and distribution of material wealth. Such business operations make up up to 20% of the gross national product in developed countries, up to 50% in developing countries , and up to 30% in countries with economies in transition .
These definitions when considering them together give a complete description of the analyzed term.
The structure of the shadow economy can be represented by three sectors that have qualitative differences from each other.
The gray shadow economy (unofficial) is the economic activity permitted by law to produce goods or provide services. Here we are talking about small turnover of small business. Entrepreneurs of this sector of the economy shy away from official registration in order to exclude additional costs that may be associated with obtaining various permits (licenses or patents).
The fictitious shadow economy looks in the form of postscripts, speculative transactions, theft, and bribery, i.e. various kinds of activities related to the receipt and transfer of funds.
The most “difficult” and severely punishable is the black shadow economy (underground), which is an economic activity prohibited by law related to the production and sale of prohibited or scarce goods. Such activities include: operations leading to violence (robbery, theft or extortion); production of goods having a devastating effect on the spiritual and physical condition of society (porn business, drug business or human trafficking).
The following factors contribute to the increase in the shadow economy:
- economic, represented by high taxes, the crisis of the financial system and the activities of unregistered economic entities;
- social - low incomes, contributing to the development of hidden activities, as well as high unemployment;
- legal, reflecting the imperfection of the current legislation, as well as the mechanism and strategy for organizing the work of law enforcement agencies to combat economic crimes that are not fully formed.
The last factor reflects the development process of this type of economy. This is the institutionalization of the connection between the shadow economy and state structures. To increase the efficiency and effectiveness of the work of state bodies in countering the sharp growth of the shadow economy, there is a clearly worked out and adjusted coordination of work within government structures of any country, their close interaction, implementation of joint programs and events.
To overcome the economic factor, it is necessary, in addition to reducing taxes, to simplify the procedure for obtaining permits. It should be borne in mind that to avoid large budget losses while lowering tax rates is possible only when these measures are carried out gradually and systematically, and not immediately for several taxes. At the same time, in no case can weaken the tax administration, allow the reduction of fines and reduce criminal and administrative liability. Otherwise, the growth of the criminal sector will be allowed, which will lead to an increase in the black shadow economy.