Tax burden and shadow economy growth in Russian regions

Abstract

The study is devoted to verification the hypothesis that a higher tax burden does not necessarily lead to the growth in the shadow economy in Russian regions. The cross-regional comparative analysis was undertaken to measure the influence of the tax burden on the shadow economy. The analysis used Rosstat workforce surveys data about the number of informal workers nationwide and by sector from 2007 to 2019. Stochastic factor analysis was used to examine the relationship between the share of informal workers and such factors as the tax burden, GRP per capita, advanced production technologies, innovation activities of organizations, industrial sectors’ and social sectors’ contribution to GRP. To determine the strength of the relationship between the factors and the resultant indicator, a correlation and cluster analysis were conducted. It has shown that there is an inverse correlation between the tax burden and informal employment. Regions with a lower tax burden tend to have higher rates of informal employment (in 2019, the correlation coefficient was –0.4274). A similar inverse correlation is observed for the level of informal employment and the macro-economic indicators – GRP per capita, innovation, and the contribution of industrial sectors to GRP. There is a direct correlation between informal employment and the contribution of social sectors to GRP. These findings shed light on the key factors conducive to the growth in the shadow economy: what matters most is the economic and innovation lag in the development of certain regions. The results of this research can be useful for policy-makers seeking to address the problem of the shadow economy in regions.