THEORETICAL ASPECTS IN THE FORMATION OF
PEDAGOGICAL SCIENCES
International scientific-online conference
197
FOREIGN COUNTRIES' EXPERIENCE IN REGULATING THE SILENT
ECONOMY
Inomjonov Hamidullo Nizamjon oglu
4th year student, National University of Uzbekistan
+998916990476
https://doi.org/10.5281/zenodo.15449971
Abstract.
The main driving forces behind the size and growth of the
shadow economy appear to be the increasing burden of taxation and social
payments, combined with broader state regulation. Weak and arbitrary
enforcement of laws and regulations encourages shadow economic activity; the
findings highlight the importance of the rule of law in curbing corruption and
related shadow economic activity.
This study examines the experience of foreign countries in regulating the
Shadow Economy, as well as the work of similar experiments.
Keywords.
Economy, tax, activity, labor, income, regime, state, order.
Аннотация.
Основными движущими силами размеров и роста
теневой
экономики,
по-видимому,
являются
растущее
бремя
налогообложения и социальных льгот в сочетании с более широкой
деятельностью государственного регулирования. Слабое и произвольное
применение законов и нормативных актов поощряет подпольную
экономическую деятельность; Результаты исследования подчеркивают
важность верховенства закона в борьбе с коррупцией и связанной с ней
теневой экономической деятельностью.
В данном исследовании проведено научное исследование опыта
зарубежных стран по регулированию теневой экономики, а также
деятельности подобных экспериментов.
Ключевые слова.
Экономика, налог, деятельность, труд, доход,
режим, государство, порядок.
Introduction.
Taxes and social security contributions are added to the cost
of labor in the formal economy, and this in turn is one of the main factors that
ensure the growth of the informal economy. If the gap between the total cost of
labor in the formal economy and the income that reaches workers after taxes is
large, this encourages employers and employees to move into the informal
economy to reduce this gap. Since the gap depends in particular on the social
security system and the tax regime, these are considered to be the main factors
that cause the development of the informal economy. For example, in Germany
and Austria, the tax and social security contributions paid by firms and their
THEORETICAL ASPECTS IN THE FORMATION OF
PEDAGOGICAL SCIENCES
International scientific-online conference
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employees make a large difference in the effective wage for workers. This
difference is more likely to encourage workers to move into the informal
economy than to continue working in the formal sector.
Several studies have found strong evidence that the tax regime has an
impact on the informal economy. In Austria, the direct tax burden, including
social security contributions, has the largest impact on the growth of the
informal economy. The burden of the tax system and the social security
contributions attached to it, as well as the number of regulations affecting firms
and workers and the complexity of the system, have a significant impact on this
process. Similar results have been observed for the Scandinavian countries,
Germany and the United States. In these countries, the increased tax burden and
the complexity of the tax system create a strong incentive for the growth of the
informal economy, as employers and employees are more likely to seek to avoid
the formal system. Participation in the shadow economy not only allows for tax
reductions but also, in some cases, the ability to bypass bureaucratic processes.
In the United States, analysis shows that as the marginal federal personal income
tax rate increases by one percentage point, other things being equal, the shadow
economy grows by 1.4 percentage points.
Similarly, maintaining the highest marginal income tax rate in the United
States may hinder further growth of the informal economy.
Results and discussion
. A study of Quebec City, Canada, shows that people
are highly mobile between the formal and informal economies, and as net wages
in the formal economy increase, they work less in the informal economy. This
study also suggests that where people perceive the tax rate to be too high, an
increase in the (marginal) tax rate leads to a reduction in tax revenues.
Government regulations can significantly increase the cost of labor for firms
in the formal economy. Such regulations include licensing requirements, labor
market regulations, trade barriers, and labor restrictions for foreigners. These
regulatory constraints lead to additional costs and red tape in the formal
economy, which creates strong incentives for firms to shift to the informal
economy in order to reduce their costs and operate more efficiently.
Employers in the formal economy, in order to reduce the additional costs
that are passed on to their employees, often encourage them to work outside the
formal system, often in the informal economy. This, in turn, slows down the
growth of the formal economy and increases the share of the informal economy.
Such growth of the informal economy, in turn, leads to a decrease in government
revenues, tax evasion and a deterioration in the quality of public services. A
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International scientific-online conference
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number of studies show that countries with more regulated economies have
larger informal economies. For example, among 84 developing, transition and
advanced economies, a one-point increase in the regulation index (from 1 to 5)
is associated with a 10 percent increase in the informal economy.
In particular, labor market regulation has a significant impact on
employers’ costs and workers’ incentives. In many OECD countries, high total
labor costs are an important reason for high rates of formal unemployment and,
at the same time, the expansion of the informal economy, which provides
employment for many officially unemployed people. Some governments (e.g.,
France) and unions (e.g., Germany) have limited the hours that people can work
in the formal economy in an attempt to reduce unemployment. The aim is to
redistribute the limited amount of work in a fairer way, but forced reductions in
formal jobs can also push people into the informal economy. For example, after
Volkswagen in Germany reduced working hours, there was a significant increase
in the number of homes renovated and renovated in areas where employees live
compared to other areas.
Countries with strong, effective government institutions tend to have
smaller underground economies. Research shows that higher taxes alone do not
cause the underground economy to grow. Instead, the tax system and the
government’s inefficient and arbitrary application of rules contribute to the
expansion of the underground economy. Therefore, if the tax system is fair and
transparent, the underground economy can be reduced. A tightly regulated
economy, combined with a weak and arbitrary rule of law, creates a fertile
ground for underground activity. This is also the environment in which
corruption flourishes.
Few studies have empirically examined the relationship between
corruption and the shadow economy, but they do show that countries with
higher levels of corruption tend to have larger shadow economies. Corruption is
essentially the abuse of public power for private gain.
Activities that create opportunities for corruption include:
regulating or licensing the practice of certain activities (such as opening a
shop or driving a taxi);
zoning land and other similar official decisions;
managing or making available goods and services provided by the
government;
controlling decisions on the procurement of public investment contracts;
controlling the granting of tax breaks; and
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International scientific-online conference
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controlling public sector recruitment and promotion.
A number of studies have found a direct correlation between a country’s
reduction in corruption and the size of the shadow economy. All studies have
shown that more corruption leads to a larger underground economy.
One of these studies notes that "some wealthy OECD countries, as well as
some in Eastern Europe, have a good balance of relatively low tax and regulatory
burdens, high revenue mobilization, good rule of law and corruption controls,
and a (relatively) small informal economy." In contrast, a number of countries in
Latin America have their own bad characteristics: high tax and regulatory
burdens and firm burdens, weak rule of law, and relatively high levels of bribery
and activity in the informal economy.
Conclusion.
Changes in the size of the shadow economy can be reflected in
the following changes:
Monetary indicators. Shadow economy transactions are usually carried out
in cash. Increased activity in the shadow economy can increase the demand for
currency.
Labor market participation and working hours. As the number of people
working in the shadow sector increases, participation in the formal economy
may decrease. Similarly, as people work more hours in the shadow sector, the
hours worked in the formal economy may decrease.
Output statistics. As the shadow economy grows, productive resources,
particularly labor, move at least partially outside the formal economy. This shift
can reduce the formal growth rate of the economy.
Theoretical and empirical studies cannot fully explain how the growth of
the shadow economy or the informal sector affects economic growth. Some
argue that the shadow economy reduces GDP growth. They argue that a
reduction in the shadow economy increases tax revenues, stimulates
government spending, especially on infrastructure and services that support the
expansion of production, and leads to an increase in overall economic growth.
Conversely, the informal sector is more competitive and efficient than the
formal sector, so growth in the informal economy stimulates overall economic
growth.
Analysts and policymakers should be aware that estimates of the informal
economy can vary widely depending on the estimation method. There is no
“best” estimation method; each approach has its strengths and weaknesses, and
provides its own insights and results. Table 3.1 describes common methods. The
currency demand and latent variable approaches are the most commonly used.
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