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Effects of the 2004 Personal Income Tax System Reform on the Shadow Sector in Ukraine

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  • Koziarivska Larysa
  • Oliinyk Andrii

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    Abstract

    The paper researches into the consequences of the pit reform of 2004 introduced on tax revenues, shadow activities, and income streams. The research approach adopted involves constructing theoretical general equilibrium model adapted to Ukrainian practices and further empirical testing of the hypotheses on the firm-level data. The study leads to inferring that the reform did not stimulate any tangible structural changes in the economy; with no effect on the shadow sector size. As a result of the reform, the government's income in the form of PIT revenues was redistributed to firms. The research shows that under the present conditions no other rate is expected to perform better the existing rate. Within the framework of existing structural ties in the economy it would be beneficial to increase compliance by introducing a more severe punishment for evasion.

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    Bibliographic Info

    Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 06-08e.

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    Date of creation: 18 Dec 2006
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    Handle: RePEc:eer:wpalle:06-08e

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    Postal: EERC Research Network, Russia and CIS, 1, Mazepy Str., suite 202, Kyiv, 01010 Ukraine
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    Related research

    Keywords: Ukraine; tax reform; tax policy; tax evasion; shadow economy; behavioural response;

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    References

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    1. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, Elsevier, vol. 27(2), pages 231-246, July.
    2. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, Elsevier, vol. 26(1), pages 19-34, February.
    3. Albu, Lucian Liviu, 2007. "Estimating the Size of Underground Economy in Romania," Working Papers of Institute for Economic Forecasting, Institute for Economic Forecasting 070601, Institute for Economic Forecasting.
    4. Pedro S. Amaral & Erwan Quintin, 2003. "The Implications of Capital-Skill Complementarity in Economies with Large Informal Sectors," Macroeconomics, EconWPA 0309017, EconWPA.
    5. Bernard SalaniƩ, 2003. "The Economics of Taxation," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262194864, December.
    6. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
    7. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
    8. Graversen, Ebbe Krogh & Smith, Nina, 2002. "Tax Evasion and Work in the Underground Sector," CLS Working Papers, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research 01-2, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research.
    9. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 524, William Davidson Institute at the University of Michigan.
    10. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
    11. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 38(2), pages 137-182, March.
    12. A. Vasilieva & E. Gurvich & V. Subbotin., 2003. "Economic Analysis of Tax Reform," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
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