The shadow economy and its dangerousness

Abstract

Literature does not provide any universal definition of the shadow economy, there are various perceptions of this phenomenon, and the phenomenon itself is defined depending on the purpose of particular studies that highlight the features of the shadow economy as a complex phenomenon relevant to the research direction. In general, the shadow economy is defined as an aggregate of activities that are not recognized, registered, protected and/or not regulated by public authorities, so the purpose of the article is to analyse the shadow economy and its dangerous to the overall economy. The shadow economy comprises legal or illegal activities which are required by law to be fully reported, but which are deliberately hidden from authorities to evade overly strict market regulations, tax payment, and bureaucratic procedures related to business registration and execution. In the case of illegal activities, the shadow economy can be considered an object of a criminal act. Different theories of the shadow economy propose that the results of different studies can reveal a fixed, variable or random relationship between the shadow economy and various macroeconomic indicators, so the impact of the shadow economy on the general economy can be treated either as negative or positive: although the shadow economy tends to reduce state budget revenue and distort natural market competition and information, at the same time it performs the functions of establishing closer relations among economic agents, generating or increasing their income, and distributing resources more efficiently than it is done in the formal economy.