Determinants of shadow economy in transition countries: economic and environmental aspects

The paper analyses the drivers of shadow economy within the transition economies. It was found that an increase in GDP per capita in a selected group of transition economies by 10% decreases the shadow economy levels by 1.2%; increase in foreign direct investment by 10% shrinks the shadow economy sector by 0.5%; improvements in energy efficiency by 10% are correlated with 2% shadow economy growth. It was also found that an increase in tax level by 10% increases the shadow economy by 1%. The relevant policy implication for transition economies is to stimulate the economic growth supplemented by increase in efficiency of the tax bodies. The separate policy measure for the transition economies is be to reform the structure of the tax system in the direction of higher portion of indirect taxes. The findings suggest that an increase in shadow economy reduces the life expectancy in the selected transition economies.