Good governance: Role in the coherence of tax competition and shadow economy

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The formation of the country’s tax competitiveness and countering the shadowing of the economy depend on several factors. One of them is an effective public administration. It defines state policy vectors, institutions’ critical tasks, and business and society development priorities. The aim of the paper is to analyze the impact of good governance on the country’s tax competitiveness and the level of the shadow economy of 11 EU countries and Ukraine in 2011–2021. The study employs statistical analysis of data series. It constructs a correlation field of points of relationship between indicators (to determine the general trends of changes in the level of the shadow economy, tax competitiveness, and the Good Governance Index). Linear mathematical model and Fishburn formula are used to construct an integral indicator of the level of efficiency of public management (Good Governance Index). Structural modeling methods formalize the influence of government management on the level of the shadow economy and tax competitiveness. It was found that the Government Efficiency Index and the Corruption Control Index exert the most significant correlation with the level of tax competitiveness and the shadow economy. Its increase of 1% leads to a rise in the level of tax competitiveness of Slovakia by 7.015%, Croatia by 6.889%, the Czech Republic by 6.606%, and Romania by 5.773%. At the same time, the smallest correlation with the level of tax competitiveness performs an Index of Political Stability and Absence of Violence/Terrorism.

Acknowledgment
The study is funded by the project VEGA – 1/0392/23 “Changes in the approach to the creation of companies’ distribution management concepts influenced by the effects of social and economic crises caused by the global pandemic and increased security risks.”
The authors are grateful to the participants of projects 0123U101945 and 0122U000777 for numerous discussions and comments.

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    • Figure 1. Normality of the distribution and descriptive statistics of the level of the shadow economy for 11 countries for 2011–2021
    • Figure 2. Normality of the distribution and descriptive statistics of the level of tax competitiveness for 11 countries for 2011–2021
    • Figure 3. Normality of the distribution and descriptive statistics of the Good Governance Index for 11 countries for 2011–2021
    • Figure 4. Correlation field of points of relationship between the shadow economy and the Good Governance Index in a section of 11 countries for 2011–2021
    • Figure 5. Correlation field of points of relationship between the level of tax competitiveness and the Good Governance Index for 11 countries for 2011–2021
    • Table 1. Weighting coefficients of indicators for assessing the country’s Good Governance Index
    • Table 2. Evaluation results of Good Governance Index
    • Table 3. Frequency distribution of Good Governance Index values
    • Table А1. Parameters of the structural equations of the formalization of the influence of the Good Governance Index on the level of tax competitiveness
    • Conceptualization
      Oleksiy Mazurenko
    • Data curation
      Oleksiy Mazurenko, Inna Tiutiunyk
    • Formal Analysis
      Oleksiy Mazurenko, Inna Tiutiunyk, Dymytrii Grytsyshen, Ferdinand Daňo, Artem Artyukhov
    • Funding acquisition
      Oleksiy Mazurenko, Inna Tiutiunyk
    • Investigation
      Oleksiy Mazurenko, Inna Tiutiunyk
    • Methodology
      Oleksiy Mazurenko
    • Project administration
      Oleksiy Mazurenko, Inna Tiutiunyk
    • Resources
      Oleksiy Mazurenko, Inna Tiutiunyk, Dymytrii Grytsyshen, Robert Rehak
    • Software
      Oleksiy Mazurenko, Inna Tiutiunyk, Ferdinand Daňo, Artem Artyukhov, Robert Rehak
    • Validation
      Oleksiy Mazurenko, Inna Tiutiunyk, Dymytrii Grytsyshen, Ferdinand Daňo, Artem Artyukhov
    • Visualization
      Oleksiy Mazurenko, Inna Tiutiunyk
    • Writing – original draft
      Oleksiy Mazurenko, Inna Tiutiunyk, Ferdinand Daňo, Artem Artyukhov, Robert Rehak
    • Writing – review & editing
      Oleksiy Mazurenko, Inna Tiutiunyk, Dymytrii Grytsyshen, Robert Rehak
    • Supervision
      Inna Tiutiunyk