The impact of shadow activities on Ukraine's economic development

Vasylenko Y.

Economy and Forecasting, 2015, issue 3, 89-103

Abstract: The problem is to create a model of Ukraine's economic development, which would reflect the legal and shadow sectors and provide estimates and forecasts of full (legal plus shadow) resulting indicators: GDP, gross income, wages, exports, imports, etc. And such a causal systemic dynamic model has been created. On this model, the author made a multivariant analysis of the impact of each type of shadow activities (A) the shadow output of each product increases; B) part of wages is paid illegally; С) material costs are overstated; D) prices of public procurement exaggerated; E) State returns VAT for bogus sales both domestically and for export, F) State returns VAT in bad time or incompletely) and their aggregate effect on Ukraine's economy. The most influential factors are the level of illegal production (A) and overstating material (С) expenses. It is revealed that a mere reduction of the amount of shadow transactions without additional economic development would only increase budget revenues and contributions to social insurance funds and pension funds, while reducing at the same time the pace of Ukraine's economic development. To avoid this, the government should use the budget increase for the modernization and development of both non-financial sector and banking system so the latter can resume its former function of more active and cheaper creditor of the production development.

Date: 2015
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