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Effects of the 2004 Personal Income Tax System Reform on the Shadow Sector in Ukraine

Koziarivska Larysa and Oliinyk Andrii ()

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: The paper researches into the consequences of the pit reform of 2004 introduced on tax revenues, shadow activities, and income streams. The research approach adopted involves constructing theoretical general equilibrium model adapted to Ukrainian practices and further empirical testing of the hypotheses on the firm-level data. The study leads to inferring that the reform did not stimulate any tangible structural changes in the economy; with no effect on the shadow sector size. As a result of the reform, the government's income in the form of PIT revenues was redistributed to firms. The research shows that under the present conditions no other rate is expected to perform better the existing rate. Within the framework of existing structural ties in the economy it would be beneficial to increase compliance by introducing a more severe punishment for evasion.

Keywords: Ukraine; tax reform; tax policy; tax evasion; shadow economy; behavioural response (search for similar items in EconPapers)
JEL-codes: D21 E64 H21 H25 H26 H32 (search for similar items in EconPapers)
Date: 2006-12-18
New Economics Papers: this item is included in nep-cis, nep-mac, nep-pbe, nep-pub and nep-tra
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