Shadow tax evasion and its impact on the competitiveness of the country’s tax system

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Tax competitiveness of the country characterizes the ability of the tax system to obtain permanent competitive advantages in attracting external and mobilizing internal financial resources due to the establishment of the optimal level of tax burden and differentiation of fiscal instruments. The complexity of this indicator determines the presence of a number of drivers of its formation. Shadow tax evasion is one of them. The purpose of the study is to assess the impact of the shadow tax evasion of taxpayers on the level of competitiveness of the tax system on the example of 11 European countries from 2011 to 2021. The methodological tools are regression analysis methods, Shapiro-Wilk tests, and Spearman’s rank correlation. It was determined that informal employment, informal production, and unregistered or informal entrepreneurship are the most common methods of tax evasion. Based on the results of the calculations, regression equations of the influence of shadow tax evasion on the level of competitiveness of the country’s tax system were constructed. It has been proven that shadow tax evasion exerts the greatest influence on the level of tax competitiveness of Slovenia (0.32), Romania (0.34), and Croatia (0.26). The least sensitive to shadow tax evasion is the competitiveness of the Czech Republic’s tax system (0.096). For most analyzed countries, this influence is carried out with a time lag of 2 years. Only in Croatia, this influence is the most substantial with a one-year lag.

Acknowledgment
The study is funded by the EU NextGenerationEU through the Recovery and Resilience Plan for Slovakia under the project No. 09I03-03-V01-00042.
The authors are grateful to the participants of projects “National security of Ukraine through the prevention of financial fraud and money laundering: war and post-war challenges” (2023–2025, state registration number: 0123U101945) and “De-shadowing and regulatory efficiency of environmental taxation: optimization modelling to ensure national security and rational use of nature” (2022–2024, registration number 0122U000777) for numerous discussions and comments.

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    • Figure 1. Comparison of the average values of the levels of tax competitiveness and shadowing of the economy for the period 2011–2021
    • Figure 2. Histogram of the distribution of the array of data regarding indicators of the shadow sector of the economy and tax competitiveness in Ukraine
    • Figure 3. Scatter diagrams of indicators of the shadow sector of the economy and tax competitiveness in Ukraine
    • Table 1. Features of shadow tax evasion
    • Table 2. Assessing the country’s tax competitiveness level
    • Table 3. Checking the indicators of the functioning of the shadow sector of the economy for compliance with the law of normality of distribution using the Shapiro-Wilk test
    • Table 4. Correlation coefficients between the level of the country’s tax competitiveness and indicators of the functioning of the shadow sector of the economy for 2011–2021
    • Table 5. Regression model of the dependence of tax competitiveness of Ukraine on the indicators of the shadow sector of the economy
    • Table 6. Econometric model of the formalization of the influence the shadow sector of the economy on the country’s tax competitiveness
    • Conceptualization
      Oleksiy Mazurenko
    • Data curation
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba
    • Formal Analysis
      Oleksiy Mazurenko, Inna Tiutiunyk, Artem Artyukhov, Yuliia Yehorova
    • 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, Artem Artyukhov
    • Software
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba, Yuliia Yehorova
    • Supervision
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba
    • Validation
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba, Yuliia Yehorova
    • Visualization
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba, Artem Artyukhov
    • Writing – original draft
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba
    • Writing – review & editing
      Oleksiy Mazurenko, Inna Tiutiunyk, Vіta Cherba, Artem Artyukhov, Yuliia Yehorova