Salatskyi O., Satur V., Kovaliuk Y.

Bukovina State Finance Academy

Shadow sector in Ukrainian economy and ways of its reduction

 

At present Ukrainian economy is at a transitional stage of formation. Imperfection of legislation, remains of the command-administrative system etc. have generated the phenomenon of “shadow economy”. Slump of economy, increased social and criminogenic tension can be explained by influence of shadow sector. Shadow economy renders considerable negative influence on all socio-economic processes which take place in society. It seems impossible to conduct economic analysis at macro-level as well as reach effective administrative and legislative decisions without taking shadow economy into account.

The aim of the present paper is to investigate essence of concept of shadow economy, pre-conditions  of existence and methods of overcoming.

Methodological basis for the present paper was provided by the works of A. Bazyliuk, I. Mazur, V. Popovych , Î. Turchinov, Z. Varnaliy, Î. Zasans`ka, , and others.

According to the definition of Î. Turchinov, "shadow economy is economic activity which is not controlled and not taxed by the state and (or) aimed at gaining profit by violating current legislation"[3, p. 32].

The following structure of shadow economy is distinguished:

1.                  "Unofficial economy" is legal activity of producing goods by households that is not subject to official registration and taxation (for example: agricultural production in subsidiary economies).

2.                 "Illegal economy" is hidden or diminished activity aimed at tax evasion, which is also carried out without corresponding licenses.

3.                  "Criminal economy" is activity concerning production and sale of forbidden goods and services (for example: production and distribution of drugs, weapon, prostitution and contraband goods), and also activity related to making illegal profits, thereby producing no goods and services (for example: racket, swindle).[2]

Shadow economy is objective by nature, therefore it can exist in any economic system. The critical rate of shadow economy is 40% of country’s GDP.

The level of shadow economy in Ukraine, as compared with 2008, increased by 8 percent and equaled 40% in 2009. The dynamics of shadow economy growth in Ukraine is determined by levels of economic and political stability, in particular increase in its volume in the years 2000 through 2009 (Fig.1) [6].

Fig.1 Integral coefficient of

 shadow economy in Ukraine,

% of official GDP

It should be pointed out that poor management of economy by the state, substantial drawbacks of economic policy, including unsatisfactory state of economic legislation have contributed to growth of shadow sector in Ukraine. Consequently, it is possible to arrive at a conclusion that shadow economy in Ukraine is caused by: 

-                     absence of adequate market environment;

-                     imperfection of institutional base of economic policy formation;

-                     inefficiency of state property management and property rights defense;

-                     imbalances in public regulatory policy;

-                     imperfection of fiscal policy; 

-                     deficiencies in judicial department activities;

-                     corruption [5]

In this way, there are plenty of factors which facilitate expansion of shadow sector in Ukraine. In particular, mostly the state itself fosters growth of shadow economy taking purposeless measures for its diminishing.

Deshadowing economy is integral system of actions, aimed at overcoming and eradication of reasons and pre-conditions of shadow phenomena and processes. It is necessary to implement the following measures for diminishing of shadow sector in business and its negative impact on development of Ukrainian economy:

Firstly, it is necessary to elaborate corresponding legislative base, namely:

-           to work out and pass the package of legislative acts;

-           to carry out complex tax reform;

-           to provide favourable terms for businesses;

-           to increase public control of transactors’ activity within the legal framework.

         Secondly, problems of organizational and legal provision are required to be solved, namely:

-           reforming national system of accounting and bookkeeping with the aim of its simplification and standardization;

-           realization of measures aimed at leveling the risks of development of labour market on the depressed territories;

-           introduction of tax incentives for investing funds in the economy of small towns;

-           creating more favourable, as compared with other states, terms for investment and attraction of financial resources.

      Thirdly, taking into account socio-psychological factors, it is necessary:

-           to arrange training and retraining of personnel for entrepreneurial activity through the system of business-centers, technoparks, etc.;

-           to carry out necessary measures aimed at formation of corresponding  public opinion in relation to shadow economic activity;

-           to conduct programs of informing citizens about the terms of establishment and doing business, in particular by social advertising [2, p.469-477].

      Thus, solving the problem of illegal economic activity is impossible without introduction of effective public policy, since the state itself plays an important role in exercising national security policy.

In conclusion, it should be noted that shadow economy has anti-national character and interferes with the formation of legal national capital. The main free-flowing financial resources, formed in this sector, are directed abroad for their preservation. It puts the national economy not only under considerable external influence, but, indisputably, causes serious political consequences. Shadow economy distorts consciousness of people making them accustomed to ignoring rules established by the state. For this reason the state must develop and employ the policy of deshadowing based on complete analysis of this phenomenon.

Literature:

1.                 Bazyliuk A.V. Shadow economy in Ukraine: monograph /[ A.V. Bazyliuk, S.O. Kovalenko] // SREI of Department of economics of Ukraine. - Ê. - 1998. – 206 p.

2.                 Sporuk O.V. To the problem of shadow economy : scientific edition / [O.V. Sporuk] // Scientific announcer BSFA. Economic sciences: Collection. scientific works. ¹1.: Economic sciences. – Chrnivtsi.: Tehnodruk – 2009.

3.                 Turchinov O.V. Shadow economy: theoretical bases of research : scientific edition / [O.V  Turchinov] – K. : ArtEk. – 1995. – 300 p.

4.                 Varnaliy Z.S. Ways of unshadowing of economy of Ukraine and its feature : scientific magazine /[ Z.S Varnaliy] // Banking. – 2007.  – ¹2.

5.                 Zasans`ka O.V. Theoretical bases of fight against a shadow economy: scientific magazine /[Î. V. Zasans`ka] // Topical problems of economy. - 2009. – ¹5. – p.76-84.

6.                 Tendencies of shadow economy in Ukraine. - [Electronic resource].- Àccess mode: www.me.gov.ua