THE SHADOW ECONOMY IN THE EASTERN PARTNERSHIP COUNTRIES: MODELLING AND ESTIMATING IN THE CONTEXT OF THE NEEDS TO DEVELOP ECONOMIC COOPERATION BETWEEN THE EUROPEAN UNION AND EASTERN PARTNERSHIP COUNTRIES

Abstract

The paper addresses a complex problem related to the development of economic relations between the European Union and the Eastern Partnership countries—Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine. The core issue lies in the excessively high level of the shadow economy in these countries, which significantly affects their internal economic conditions and has a profound negative impact on economic cooperation with the European Union. The assessment and monitoring of changes in shadow economies in the Eastern Partnership countries are crucial for the European Union, particularly for making informed policy decisions regarding economic cooperation. This creates a need to develop and apply appropriate instruments for modeling and evaluating the shadow economy. The paper discusses various tools for modeling and assessing the shadow economy, with a particular focus on a new integrated approach that analyzes the shadow economy holistically, taking into account multiple aspects of economic life and development processes. A new model for assessing the shadow economy in the Eastern Partnership countries is presented; it is based on the Tanzi model and incorporates both traditional variables such as taxes, wages, and salaries, as well as newly modified indicators. The paper also presents empirical research on modeling and estimating the scope and dynamics of the shadow economy in these countries, along with the main findings. The results indicate that the shadow economy is highly developed, widespread, and potentially dangerous. They also reveal the existence of a relationship between the size of the shadow economy and the control of corruption, although this relationship varies significantly across countries. The methodological approach and findings can be used to develop a decision support system for improving economic relations between the European Union and the Eastern Partnership countries.

Data:
Received: 17 Mar 2019
Revised: 8 May 2019
Accepted: 6 Jun 2019
Published: 20 Jun 2019