Analytical assessment of tax gaps depending on the level of the shadow economy

Abstract

One of the most threatening consequences of the existence of a shadow economy is the formation of tax gaps that reduce the effectiveness and speed of economic and social reforms in the country and reduce the level of its macroeconomic stability. The article analyses theoretical approaches to the identification of the main determinants of tax gaps in the economy. The influence of the shadow economy on the volume of tax breaks is substantiated. Based on empirical estimates, the hypothesis of a linear, nonlinear, and asymmetric relationship between drivers of tax gap formation and the level of shadowing of the economy is tested. The existence of nonlinear communication for countries with a level of shadow economy more than 40%, a linear relationship between the analysed indicators and a level of shadowing less than 20% and asymmetric for the share of the informal economy of 20-40% is proved