Journal of Tax Reform
Tax burden and shadow economy growth in Russian regions
D.Yu. Fedotov
Baikal State University, Irkutsk, Russian Federation
Abstract
The study is devoted to verification the hypothesis that a higher tax burden does not necessarily lead to the growth in the shadow economy in Russian regions. The cross-regional comparative analysis was undertaken to measure the influence of the tax burden on the shadow economy. The analysis used Rosstat workforce surveys data about the number of informal workers nationwide and by sector from 2007 to 2019. Stochastic factor analysis was used to examine the relationship between the share of informal workers and such factors as the tax burden, GRP per capita, advanced production technologies, innovation activities of organizations, industrial sectors’ and social sectors’ contribution to GRP. To determine the strength of the relationship between the factors and the resultant indicator, a correlation and cluster analysis were conducted. It has shown that there is an inverse correlation between the tax burden and informal employment. Regions with a lower tax burden tend to have higher rates of informal employment (in 2019, the correlation coefficient was –0.4274). A similar inverse correlation is observed for the level of informal employment and the macro-economic indicators – GRP per capita, innovation, and the contribution of industrial sectors to GRP. There is a direct correlation between informal employment and the contribution of social sectors to GRP. These findings shed light on the key factors conducive to the growth in the shadow economy: what matters most is the economic and innovation lag in the development of certain regions. The results of this research can be useful for policy-makers seeking to address the problem of the shadow economy in regions.
Keywords
tax burden, shadow economy, regional economy, informal employment, correlation analysis, innovation
JEL classification
H21; O17; R21References
1. Medina L., Schneider F. Shadow economies around the world: what did we learn over the last 20 years? International Monetary Fund, Washington, D.C.; 2018. 76 p. Available at: https://wp.flgr.bg/wp-content/uploads/2018/06/imf_shadow_2017.pdf
2. Putniņš T.J. Size and determinants of shadow economies in the Baltic States. Baltic Journal of Economics. 2011;11(2):5–25. https://doi.org/10.1080/1406099X.2011.10840498
3. Albu L.L. A model to estimate spatial distribution of informal economy. Romanian Journal of Economic Forecasting. 2008;5(4):111–124. Available at: https://www.researchgate.net/publication/23978649_A_model_to_estimate_spatial_distribution_of_informal_economy
4. Ardizzi G., Petraglia C., Piacenza M., Turati G. Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy. Bank of Italy Working Paper. No. 864, 2012. 26 p. Available at: https://iris.unito.it/handle/2318/125781#.YUa2d-xxeUk
5. Heath E.B., Jones L.R. Using electricity demand to estimate state-level underground economic activity in the US. International Journal of Business and Social Science. 2013;4(8):272–280. Available at: https://www.ijbssnet.com/journals/Vol_4_No_8_Special_Issue_July_2013/27.pdf
6. Mummert A., Schneider F. The German shadow economy: parted in a united Germany? FinanzArchiv: Public Finance Analysis. 2002;58(3):286–316. https://doi.org/10.1628/0015221022905885
7. Sokolovskaya E.V., Sokolovsky D.B. Evaluating the Shadow Economy Size at the Regional Level as a Prerequisite for Tax Revenues Regulation. Izvestiya of Irkutsk State Economics Academy. 2015;25(3):480–484. (In Russ.) Available at: http://izvestia.bgu.ru/reader/article.aspx?id=20186
8. Sutina E.A., Zhigalova O.V., Tuganova E.A. The state and dynamics of the shadow sector of the economy in the Ulyanovsk region. Bulletin of the Catherine Institute. 2020;1(49):56–60. (In Russ.)
9. Shcheglov V.Yu., Fedonina E.V. Analysis of the impact of taxation on the activities of economic entities. Models, Systems, Networks in Economics, Engineering, Nature and Society. 2019;4(32):40–49. (In Russ.) Available at: https://mss.pnzgu.ru/mss5419
10. Krivorotov V.V., Kalina A.V., Podbereznaya M.A. Assessment of the scale of the spread of the shadow economy at the regional level. Bulletin of the Ural Federal University. Series: Economics and Management. 2019;18(4):540–555. (In Russ.) https://doi.org/10.15826/vestnik.2018.17.4.027
11. Vylkova E.S., Pozov I.A. Tax state of the subject of the Russian Federation: theory, methodology, diagnostic methodology. St. Petersburg: Kultinformpress; 2014. 262 p. (In Russ.)
12. Lizina O.M. Regional portrait of the shadow economy. Contentus. 2020;(4):58–65. (In Russ.) Available at: http://kontentus.ru/wp-content/uploads/2020/04/ЛизинаОМ.pdf
13. Aleshnikova V.I., Burtseva T.A. Tools for countering the shadow economy in the regions of Russia. Proceedings of Voronezh State University. Series: Economics and Management. 2019;(4):28–34. (In Russ.) Available at: https://journals.vsu.ru/econ/article/view/2473
14. Kireenko A.P., Nevzorova E.N., Orlova E.N., Polyakova O.Yu. Shadow economy in the regions of Russia: assessment based on the MIMIC model. Region: Economics and Sociology. 2017;(1):164–189. (In Russ.) https://doi.org/10.15372/REG20170108
15. Burov V.Yu., Kisloshchaev P.A. Ensuring the economic security of small enterprises as a factor contributing to the development of innovative activity. Fundamental Study. 2017;(3):105–109. (In Russ.) Available at: https://fundamental-research.ru/ru/article/view?id=41403
16. Dakhov I.G. Shadow economy in the industry of modern Russia. Economics of Education. 2013;(2):112–122. (In Russ.)
17. Kondratieva E.A. Innovative activity of business and shadow processes. Banking Services. 2010;(9):38–45. (In Russ.)
18. Tereshchenko A.P. Shadow economy as a threat to the implementation of the policy of modernization, innovation and investment attraction in the economy of the country and the region. Society and Law. 2010;(5):270–272. (In Russ.) Available at: https://cyberleninka.ru/article/n/tenevaya-ekonomika-kak-ugroza-realizatsii-politiki-modernizatsii-vnedreniya-innovatsiy-i-privlecheniya-investitsiy-v-ekonomiku-strany-i
19. Kakaulina M.O. Methodology for quantitative assessment of the unobservable economy at the regional level based on the industry structure of gross value added. Bulletin of the Ural Federal University. Series: Economics and Management. 2018;17(6):1021–1037. (In Russ.) https://doi.org/10.15826/vestnik.2018.17.6.046
20. Nevzorova E.N., Kireenko A.P., Mayburov I.A. Spatial relationships and patterns of the spread of the shadow economy in Russia. Economy of Region. 2020;16(2):464–478. (In Russ.) https://doi.org/10.17059/2020-2-10
21. Hart K. Informal economy opportunities and the urban employment in Ghana. Journal of Modern Africa Studies. 1973;11(1):61–89. https://doi.org/10.1017/S0022278X00008089
22. Gershuny J. Social Innovation and the Division of Labour. Oxford: Oxford University Press; 1983. 190 p. Available at: https://archive.org/details/socialinnovation0000gers/
23. Bangasser P. The ILO and the Informal Sector: an Institutional History. ILO Employment Paper, 2000/9. 64 p. Available at: https://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_142295.pdf
24. Slonimczyk F. The Effect of Taxation on Informal Employment: Evidence from the Russian Flat Tax Reform / Research in Labor Economics, vol. 34. Informal Employment in Emerging and Transition Economies. Bingley: Emerald Group Publishing Limited, 2011, P. 55–99. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1986744
25. Nureyev R.M., Akhmadeev D.R. Classification of informal employment and methods of its assessment. Terra Economicus. 2015;25(1):14–29. (In Russ.) Available at: https://te.sfedu.ru/evjur/data/2015/terra_13.1__nureev_ahmadeev.pdf
26. Bernabé S. Informal Employment in Countries in Transition: A Conceptual Framework. LSE STICERD Research Paper No. Case 056; 2002. 68 p. Available at: https://sticerd.lse.ac.uk/dps/case/cp/CASEpaper56.pdf
27. Williams C. Cash-in-hand Work: Unravelling Informal Employment from the Moral Economy of Favours. Sociological Research Online. 2004;9(1). https://doi.org/10.5153/sro.888
28. Meldolesi L. Policy for the Regulation of the Underground Economy and Employment. Review of Economic Conditions in Italy. 2003;1. Available at: www.emersionelavorononregolare.it/catania/index.php
29. Jutting J., Parlevliet J., Xenogiani T. Informal Employment Re-loaded. Working Paper No. 266. 2008. 36 p. Available at: https://www.oecd.org/dev/39900874.pdf
30. Krylova N.P., Levashov E.N. Informal employment in the regional labor market. Intellect. Innovations. Investments. 2018;(8):33–38. (In Russ.) Available at: http://intellekt-izdanie.osu.ru/en/archive_new/8_2018/august-2018-pp.-33-38.html
31. Keynes J.M. The General theory of employment, interest and money. Moscow: Eksmo; 2007. 960 p. (In Russ.)
32. Soto E. de. Another way: An economic response to terrorism. Chelyabinsk: Society; 2007. 408 p. (In Russ.) Available at: www.studmed.ru/view/soto-ernando-de-inoy-put-ekonomicheskiy-otvet-terrorizmu_1511ce7d2a6.html
Acknowledgements
The research was supported by the grant of the Russian Foundation for Basic Research, project No. 19-010-00365А “Shadow Economy and its Sectoral Characteristics as an Impediment to Technological Development”.
About Authors
Dmitry Yu. Fedotov – Dr. Sci. (Econ.), Associate Professor, Professor of the Department of International Relations and Customs, Baikal State University (11 Lenin str., Irkutsk, 664003), ORCID: 0000-0001-9908-802X; e-mail: fdy@inbox.ru
For citation
Fedotov D.Yu. Tax burden and shadow economy growth in Russian regions. Journal of Tax Reform. 2021;7(3):284–301. doi.org/10.15826/jtr.2021.7.3.104
Article info
Received September 12, 2021; Revised October 24, 2021; Accepted November 14, 2021
DOI: https://doi.org/10.15826/jtr.2021.7.3.104
Download full text article:
~683 KB, *.pdf
(Uploaded
20.12.2021)
Created / Updated: 31 August 2015 / 3 July 2017
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
ISSN 2414-9497 (online)