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

Author

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  • Koziarivska Larysa
  • Oliinyk Andrii

    ()

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.

Suggested Citation

  • Koziarivska Larysa & Oliinyk Andrii, 2006. "Effects of the 2004 Personal Income Tax System Reform on the Shadow Sector in Ukraine," EERC Working Paper Series 06-08e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:06-08e
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    References listed on IDEAS

    as
    1. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
    2. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series 524, William Davidson Institute at the University of Michigan.
    3. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March.
    4. Frederiksen, Anders & Graversen, Ebbe Krogh & Smith, Nina, 2005. "Tax evasion and work in the underground sector," Labour Economics, Elsevier, vol. 12(5), pages 613-628, October.
    5. John Creedy, 1998. "Measuring Welfare Changes and Tax Burdens," Books, Edward Elgar Publishing, number 1579.
    6. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 119-128, March.
    7. SalaniƩ, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, January.
    8. Pedro S. Amaral & Erwan Quintin, 2003. "The Implications of Capital-Skill Complementarity in Economies with Large Informal Sectors," Macroeconomics 0309017, EconWPA.
    9. Albu, Lucian Liviu, 2007. "Estimating the Size of Underground Economy in Romania," Working Papers of Institute for Economic Forecasting 070601, Institute for Economic Forecasting.
    10. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, vol. 26(1), pages 19-34, February.
    11. A. Vasilieva & E. Gurvich & V. Subbotin., 2003. "Economic Analysis of Tax Reform," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    12. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
    13. 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 363-373, August.
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    More about this item

    Keywords

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

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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