THE SHADOW ECONOMY'S IMPACT ON TAX CAPACITY AND BUDGET SYSTEMS: QUANTITATIVE ASSESSMENT AND POLICY IMPLICATIONS

Аннотация

This study provides a comprehensive assessment of the shadow economy's role in eroding tax capacity and its quantitative impact on fiscal system stability. Official data from Uzbekistan's Tax Committee, Ministry of Finance, and the International Monetary Fund (IMF) covering 2010–2023, as well as the World Bank panel dataset encompassing 42 developing countries, were utilized. The tax gap methodology and dynamic panel GMM (Generalized Method of Moments) approach were applied. The key findings indicate that in 2023, the shadow economy in Uzbekistan eliminated potential tax revenue equivalent to 31.4% of budget revenues, amounting to 68.7 trillion soums per year, or approximately USD 6.2 billion. It was also empirically demonstrated that a 1 percentage point increase in the shadow economy expands the budget deficit by 0.34 percentage points. The proposed three-dimensional policy package — improving tax administration efficiency, expanding social protection coverage in the informal sector, and ensuring fiscal transparency — has the potential to attract additional resources to the budget.