The Impact of the «Gray» Shadow Economy on the Socio-economic Security of a City

Abstract

The article is aimed at presenting the guidelines for methodological principles helping to assess the impact of the «gray» shadow economy on the socio-economic security of a city. Such methodological principles are relevant due to the growing role of cities in the socio-economic development of Ukraine and the lack of methodological guidelines for assessing the impact of the «gray» shadow economy on the socio-economic security of a city. The existing official Guidelines for assessing the shadow economy level are aimed at obtaining estimates of the «gray» shadow economy at the macro-level, while the recommendations suggested by the Organization for Economic Cooperation and Development (OECD) to measure the unobserved economy remain mostly unapplied in Ukraine. The article presents methodological principles for assessing the impact of the «gray» shadow economy on the city budget, which combine interdependent concepts, principles and categories of assessment, whose operationalization as a developed algorithm has made it possible to create an operational assessment environment. The methodological principles for assessing the impact of the unobserved economy on the city budget are based on the principles provided and, due to the peculiarities of the object of assessment, require a number of assumptions to be made. The calculation of the amount of non-receipts in the budgets of several Ukrainian cities made according to the developed assessment algorithm shows that the budgets of the cities in question failed to receive significant sums during the selected period due to concealing business income, number of employees, and payment of wages "in envelopes". Of course, it is advisable to admit some conditionality of the amount of budget losses in the cities analyzed due to the «gray» shadow economy; still, even if we halve their size, the loss will remain significant. However, the negative impact of the shadow economy on a city is not limited to the lack of a significant amount of funds by the city budget. It is also necessary to take into account remote threats to the socio-economic system of the city due to the presence of the shadow economy, e.g.: deliberate limitation of the potential of the city's economic development and distortion of economic competition.

Keywords

• city
• social and economic security
• «gray» shadow economy
• influence
• budget
• losses
• methodological principles
• algorithm