Tax, investment, institutional and social channels of economic shadowing: Challenges for macro-financial stability and good governance


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A significant size of the shadow economy is a threat to the sustainable functioning of a country’s economy, its ability to finance economic and social programs. The paper studies the influence of the shadow economy on the macro-financial stability of the EU countries. The dependence between macro-financial stability and the size of the shadow economy was estimated using the quadrocentric (considering the four channels of the shadow economy) recursive (takes into account direct and inverse relationships between them) model. Dependence between indicators was analyzed using Euler’s methods, Calvo’s and Dixit Stiglitz’s principles, Taylor’s and Smets-Wouters’ function. It has been proved that shadow economy channels affect the macro-financial stability almost equally (an increase in the size of the shadow economy in Slovenia by 1% leads to a decrease in macro-financial stability by 0.562% for tax, 0.56% for investment, 0.572 for institutional, and 0.444 for social channels). At the same time, the growth in the volume of shadow transactions through one channel forms an impetus for the increasing intensity of use of the remaining channels to hide income. With the help of the payment matrix, the optimal level of drivers of shadow economy by which the targeted value of the level of macro-financial stability is achieved was determined. It was concluded that ensuring good governance in the direction of preventing shadow schemes of capital withdrawal should be carried out in terms of institutional, tax, social, and investment channels of the shadow economy.

This work was supported by the Slovak Research and Development Agency under the contract No. APVV-16-0602.

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    • Table 1. Payment matrix
    • Table 2. Dynamics of the integral indicator of macro-financial stability in EU countries
    • Table 3. Parameters of the model of influence of shadow economy relevant determinants on macro-financial stability and their diffusion
    • Table 4. The results of the calculation of non-centrality indices
    • Table 5. Results of the optimal solution search (a fragment for Slovenia)
    • Table 6. Matrix for testing the sensitivity of the quadrocentric model to a change in the factor indicator (a fragment for Slovenia)
    • Table 7. Statistical analysis of the most influential determinants of tax, investment, institutional, social channels of the shadow economy and the level of macro-financial stability of Slovenia
    • Table 8. Matrix for determining the optimal value of the unemployment rate, which ensures the achievement of the targeted level of a country’s macro-financial stability and the minimization of the size of the shadow economy
    • Conceptualization
      Serhiy Lyeonov, Inna Tiutiunyk, Miroslava Vasekova
    • Funding acquisition
      Serhiy Lyeonov, Inna Tiutiunyk, Maksym Samchyk
    • Investigation
      Serhiy Lyeonov, Oleksandr Dziubenko
    • Methodology
      Serhiy Lyeonov, Miroslava Vasekova
    • Project administration
      Serhiy Lyeonov, Maksym Samchyk
    • Software
      Serhiy Lyeonov, Inna Tiutiunyk
    • Validation
      Serhiy Lyeonov, Miroslava Vasekova
    • Visualization
      Serhiy Lyeonov, Inna Tiutiunyk, Maksym Samchyk
    • Writing – review & editing
      Serhiy Lyeonov, Maksym Samchyk
    • Data curation
      Inna Tiutiunyk, Oleksandr Dziubenko
    • Formal Analysis
      Inna Tiutiunyk, Maksym Samchyk
    • Resources
      Inna Tiutiunyk, Miroslava Vasekova
    • Supervision
      Inna Tiutiunyk, Oleksandr Dziubenko
    • Writing – original draft
      Inna Tiutiunyk, Oleksandr Dziubenko