Journal of Tax Reform
Intersectoral Shadow Economic Linkages and their Impact on Tax Evasion
D.Yu. Fedotov 1, E.N. Nevzorova 2
1 Baikal State University, Irkutsk, Russian Federation
2 Irkutsk State University, Irkutsk, Russian Federation
Abstract
The article discusses shadow economic linkages between companies from different sectors. The research hypothesis is that the multiplier effect can cause a spillover of the shadow economy from one sector to another through business connections between companies. The research methodology comprises, first, a correlation analysis of the indicators reflecting the level of informal activities in the key industries of Russia in 2011–2017; second, analysis of input-output tables to reveal the patterns inherent to intersectoral financial flows that involve sectors with a large share of shadow activities; and, third, analysis of the tax ratio in the key sectors in the given period. The correlation analysis of Rosstat’s adjustment of gross value added for informal economic activities and the share of undocumented workers employed in the total number of workers in the sector has revealed a strong correlation between these indicators. It was found that such sectors as real estate, agriculture and forestry, construction, trade and hotel industry have shadow economies exceeding the average level in the country. We used the input-output balance data to reveal the close connections between the sectors with a large share of shadow activities and other sectors. Our calculations have brought to light an increase in the share of illicit transactions in some industries due to interactions with shadow sectors. This trend was particularly characteristic of such industries as transport and communications, education, health care and social services. It was also found that the tax ratio for transactions involving companies from sectors with a large share of shadow activities tended to decline due to tax evasion. These research results can be used by tax authorities to detect and monitor economic operations associated with high tax evasion risks.
Keywords
shadow economy, sectors of economy, tax evasion, informal employment, tax ratio, statistics, input-output balance
JEL classification
H26, K42References
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Acknowledgements
The research was supported by the grant of the Russian Foundation for Basic Research (project №19-010-00365А ‘Shadow Economy and its Sector-Specific Characteristics as a Factor Impeding Technological Development’).
About Authors
Dmitry Yu. Fedotov – Doctor of Economics, Associate Professor, Professor of the International Relations and Customs Department, Baikal State University (11 Lenin St., Irkutsk, 664003, Russia); ORCID: 0000-0001-9908-802X; e-mail: fdy@inbox.ru.
Ekaterina N. Nevzorova – Candidate of Sciences (Economics), Associate Professor, Department of Strategic and Financial Management, Irkutsk State University (1 Karl Marx st., Irkutsk, 664003, Russia); ORCID: 0000-0002-4802-5448; e-mail: nevzorova_kat@mail.ru.
For citation
Fedotov D.Yu., Nevzorova E.N. Intersectoral Shadow Economic Linkages and their Impact on Tax Evasion. Journal of Tax Reform. 2020;6(1):36–53. DOI: 10.15826/jtr.2020.6.1.074.
Article info
Received February 15, 2020; Revised March 12, 2020; Accepted April 9, 2020
DOI: http://dx.doi.org/10.15826/jtr.2020.6.1.074
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